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TAXATION 

IN 

TENNESSEE 


BY 

CLAUDE O. BRANNEN 

it 


Assistant Agricultural Economist 
U. S. Department of Agriculture 
Washington, D. C. 


Formerly Assistant in Economics 
George Peabody College for Teachers 


Author of Tax Assessors’ Rate Guide 


PUBLISHERS 

THE BALDWIN LAW BOOK CO. 

Incorporated 

LOUISVILLE, KY. 





HTb+3^ 

■137 


COPYRIGHT 1920 
By 


THE BALDWIN LAW BOOK CO. 
Incorporated 


ALL RIGHTS RESERVED 


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©GU570171 ~ 


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TO THE CITIZENSHIP OF TENNESSEE 
WHO ARE INTERESTED IN A FAIR AND 
EQUITABLE SYSTEM OF TAXATION 





PREFACE 


The purpose of this book is to furnish an impartial 
study of the development of the system of State tax¬ 
ation in Tennessee since the constitutional revision in 
1870, in order to provide a manual, topically arranged, 
for the use of those who are interested in the past his¬ 
tory of taxation in the state of Tennessee, and those 
who desire to accomplish needed reforms in taxation. 

The general plan adopted in dealing with the sub¬ 
ject is to trace out the legal changes occurring from 
time to time in the development of each form of taxa¬ 
tion, showing the influence effecting such changes 
particularly with reference to the acts which have had 
a permanent effect upon the taxing system. In so far 
as is practicable, each principal form of taxation has 
been treated as a separate topic. 

As far as possible, the writer has attempted to out¬ 
line not only the legal provisions, including court de¬ 
cisions, but actual practice in administration. In fact, 
an effort is made to draw a fair picture of the taxing 
system in its several stages of development, with the 
purpose of aiding the reader to understand the present 
system; and freedom has been exercised in pointing 
out commendable characteristics, as well as the defects 
of the various arrangements. 

The materials of the book have been mainly taken 
from the statutes of Tennessee, court reports, annual 
and biennial reports of the several state departments, 
and various state documents bearing upon taxation in 
Tennessee. Special acknowledgement of indebtedness 
is made to John Trotwood Moore, State Librarian and 
Archivist of Tennessee, Miss Lutie Jones and other 
members of the library staff, who furnished working 
space in the library and placed all the materials on 


4 


PREFACE. 


hand at the writer’s disposal. Other materials were 
secured in the library of George Peabody College for 
Teachers, and the assistance of Miss Emma Watts and 
other assistant librarians is gratefully acknowledged. 
Valuable materials in the form of files of newspapers 
and periodicals were furnished by the Carnegie Library 
of Nashville. Professor S. L. Smith, Rural School 
Supervisor, State Department of Education, kindly 
worked up the material for the topic on public educa¬ 
tion, which appears in the book in very nearly its 
original form. Professor Smith has interpreted this 
subject in the light of several years of successful ad¬ 
ministration of public education in Tennessee. All 
these materials were largely supplemented by personal 
interviews and valuable suggestions of the members of 
the several departments of the State government and 
the General Assembly. Among these were the follow¬ 
ing: In Department of Secretary of State, Ike B. 
Stevens, Secretary of State; Frank Avent, Chief Clerk, 
and James B. Brigham, Bookkeeper, the latter giving 
special attention to certain phases of the manuscript; 
Department of Comptroller of the Treasury, S. E. 
Hunt, Chief Clerk; A. S. Thompson, and J. H. Cum¬ 
mings, assistants, who gave their personal attention to 
the topics of assessment and collection of taxes; Rail¬ 
road Commission, Colonel B. A. Enloe, Chairman of 
the Railroad and Public Utilities Commission and 
Chairman of the State Board of Equalization, who 
kindly read and made valuable suggestions in connec¬ 
tion with the chapter on corporation taxation, and 
Hon. A. V. Louthan, Chief Tax Statistician. Members 
of the present General Assembly who discussed with 
the writer at some length certain tax problems and tax 


PREFACE. 


5 


reforms in the state are Senators Park Worley, of Sul¬ 
livan County; E. N. Haston, of Van Buren County; C. 
Y. Clark, of Maury County; L. E. Gwinn, of Tipton 
County; John H. Harber, of Gibson County; and 
Thomas L. Coleman, of Marshall County. Mr. Allen, 
public accountant, and for many years Commissioner 
of Building & Loan Associations in Tennessee, gave 
valuable information concerning the history of the 
taxation of building and loan associations. Others who 
granted interviews and offered assistance in securing 
materials on taxation are Hon. Miles P. O’Connor, 
revenue attorney; Hon. Dan McGugin, attorney for the 
Manufacturers’ Association of Tennessee; Chas. G. 
Gilbert, Secretary of the Manufacturers’ Association 
of Tennessee, and Richard H. Yancey, of the Nash¬ 
ville Banner, all of Nashville, Tennessee. 

This book was begun as a thesis to meet partial re¬ 
quirements for the degree of Master of Arts in George 
Peabody College for Teachers, but it is revised and 
very much amplified in its present form. Special ac¬ 
knowledgment of indebtedness is due Dr. L. C. Gray, 
Economist in Charge of Land Economics, Department 
of Agriculture, Washington, D. C., formerly Head of 
the Department of Economics, George Peabody Col¬ 
lege for Teachers, for directing the compilation of the 
original thesis and also for constructive and technical 
criticism of the final manuscript. 

The writer also is indebted to Dr. O. C. Ault, pres¬ 
ent Head of the Department of Economics, George 
Peabody College for Teachers, and Miss Lula Ocillee 
Andrews, Head of the Department of English in the 
same institution, for reading the manuscript and of¬ 
fering valuable criticism and suggestions. 

Nashville, Tennessee, February, 1920, C. O. B. 


CONTENTS 


CHAPTER PAGE 

I. Constitutional Provisions for Taxation. ... 11 

II. General Property Taxation. 21 

1. Place of the General Property Tax in 

the Tax System of Tennessee. 21 

2. Assessment. 23 

(1) Historical Development . 23 

(2) Exemptions. 35 

(3) Real and Personal Property As¬ 

sessments . 37 

(4) Special Forms of Realty and 

Personalty Assessments .... 39 

(5) Poll Tax . 41 

(6) County Board of Equalization. . 42 

(7) State Board of Equalization.... 44 

(8) Conclusion. 45 

3. Collections. 47 

(1) Historical Development . 47 

(2) Present Plan of Collection. 54 

(3) Delinquent Tax Problem. 54 

(4) A Comparison of Personalty and 

Realty Assessment and Col¬ 
lection . 58 

III. The Taxation of Corporations. 62 

1. Railroad Taxation . 62 

2. Telegraph and Telephone. 79 

(1) Telegraph. 79 

(2) Telephone. 81 

3. Corporation Taxation in General. 82 

(1) Historical Development . 82 






















8 


CONTENTS. 


CHAPTER PAGE 

(2) Manufacturing. 93 

(3) Quasi-public. 94 

(4) Other Corporations . 95 

4. Other Quasi-public Corporations. 98 

(1) General Remarks . 98 

(2) Sleeping Car Companies. 99 

(3) Express Companies . 100 

(4) News Companies . 101 

(5) Terminal Companies. 101 

(6) Hydro-Electric Companies. 101 

(7) Turnpikes. 102 

5. Taxation of Banks. 103 

(1) Historical Development . 103 

(2) Present Plan of Taxing Banks. . 107 

IV. Privilege and Occupation Taxation. 109 

1. Merchants’ Tax . 109 

2. Business License Taxes. 118 

3. Fees. 123 

(1) Litigation Fees. 127 

V. Special Forms of Taxation. 129 

1. Insurance. 129 

2. Inheritance Tax . 136 

3. Other Special Forms. 143 

(1) Building and Loan Associations. 143 

(2) Transfer of Realty. 144 

(3) Mortgage Tax . 145 

(4) Automobile Registration Fees... 146 

VI. Recent Reforms in Taxation. 148 

1. Investigations of the Taxing System.. 148 

2. Reform Acts of 1919. 158 

(1) The Governor’s Message to the 

Assembly. 158 





























CONTENTS. 


9 


CHAPTER PAGE 

(2) Litigation Tax, Chapters 57 and 

134. 160 

(3) Inheritance Tax Law, Chapter 46 161 

(4) The Railroad Commission Made 

State Board of Equalization, 
Chapter I . 166 

(5) Sliding Scale Tax Rate, Chapter 

II. 171 

(6) Railroad Commission Made State 

Board of Tax Assessors, 
Chapter III. 172 

(7) Dog Law . 173 

(8) Fees and Other Charges. 174 

(9) Bonds for Local Improvement, 

Chapter 114 . 175 

(10) Measures which Failed of Pas¬ 

sage . 176 

(11) Provision for Constitutional Con¬ 

vention . 177 

VII. Local Taxation and Taxation for Educa¬ 
tional Purposes. 178 

1. County and Municipal Taxation. 178 

(1) County Revenues. 178 

(2) Municipal Revenues . 179 

2. Taxation for Public Education. 180 

(1) General Statement. 180 

(2) Historical Development . 183 

(3) The State Funds. 185 

(4) Recent Enactments for Educa¬ 

tional Purposes . 190 

(5) Conclusion. 193 





















10 


CONTENTS. 


CHAPTER PAGE 

APPENDIX. 

A. I. Provisions for taxation in the Consti¬ 

tution of 1796. 195 

II. Provisions for taxation in the Consti¬ 
tution of 1834. 195 

III. Provisions for taxation in the Consti¬ 
tution of 1870. 196 

B. I. Governor Rye’s Message to the Sixty- 

first General Assembly, Jan. 7, 1919. . 198 

II. Governor Roberts’ Message to the Sixty- 

first General Assembly, Jan. 16, 1919. . 233 

C. I. Resolution 56 of the General Assembly 

of 1919, Providing for an Income Tax 

Law. 249 

II. Resolutions providing for the Calling of 
a Constitutional Convention and Elec¬ 
tion of Delegates Thereto. 250 

BIBLIOGRAPHY. 253 

INDEX. 255 









CHAPTER I. 


THE CONSTITUTIONAL PROVISIONS FOR 
TAXATION. 

The financial system of Tennessee has its origin 
back in the Revolutionary War period. The Constitu¬ 
tion of 1796 was modeled after the one adopted in 1776 
by the parent state, North Carolina. In this is found 
the fundamental provisions for the general property 
tax, which has been the leading source of revenue 
since the foundation of the state. The provisions deal¬ 
ing with finance were carried forward and adopted in 
1834. To understand the present system of taxation 
in Tennessee it is necessary to know first of all the con¬ 
ditions and motives which led to the revision in 1870 
of the Constitution of 1834. 

The Act authorizing the people to call a constitu¬ 
tional convention passed the Legislature on November 
15, 1869, and the question was voted upon the third 
Saturday in December. The election resulted in favor 
of holding the convention by a popular majority of 
over 40,000 votes. 1 

The Constitutional Convention of 1870 was pre¬ 
eminently a product of reconstruction problems. The 
war had been one of destruction, and the four years 
succeeding the close of the war had been a period of 
extravagance and disorder. The people found them¬ 
selves in a helpless condition politically and industrially. 
“The old order had been swept away, and the new had 
not been fairly established.” 2 There was need of relief 

1 Garrett and Goodpasture, History of Tennessee, p. 251. 

2 Joshua W. Caldwell, Constitutional History of Tennes¬ 
see, p. 146 ff. 


12 


TAXATION IN TENNESSEE. 


from political oppression and the heavy burden of 
taxation, and the people turned to constitutional re¬ 
form for that relief. The cause of the convention was 
championed by the press, with the exception of the 
ultra-radical division, and the people expressed their 
desire for it by an overwhelming popular vote. 

The purposes for which the convention should be 
called were aptly stated by Judge Lee of Memphis, in 
August, 1869, several months before the enabling act 
was passed. His suggestion provided for: (1) Regu¬ 
lation of manhood suffrage; equality before the law; 
(2) restrictions for the debt creating power of the 
state, including a funding act; (3) prohibition on the 
Legislature loaning the credit of the state to corpora¬ 
tions or public enterprises without submitting the ar¬ 
rangement to a vote of the people; (4) adoption of 
means to compel railroads that had secured state aid 
to relieve the state of the load of debt thereby incurred, 
or if in default to see that the roads should pay the 
debt; (5) equality of taxes as between agricultural and 
commercial interests; and (6) miscellaneous items. 3 

Practically all state historians agree that the suf¬ 
frage question was the most important in the minds of 
the members of the convention. Judge Lee’s sugges¬ 
tions and also the record of the proceedings of the con¬ 
vention indicate that the reconstruction of the financial 
system and policy of the state was at least second in 
importance. The suffrage appealed more to the pas¬ 
sions of men, and outwardly overshadowed all other 
considerations, but the business and financial interests 
of the state were alarmed at the soaring tax rate and 

3 Nashville Union and American, Aug. 24, 1869. 


CONSTITUTIONAL PROVISIONS. 


13 


the still threatening possibilities of the system of lend¬ 
ing the state credit, which was a characteristic practice 
under the former constitution. 

Many resolutions and amendments upon the suf¬ 
frage question were introduced in the Convention, but 
the poll tax provision was the only one which concerns 
the subject of taxation. This clause provides that “All 
male citizens over the age of twenty-one years, except 
such persons as may be exempted by law on account 
of age or other infirmity, shall be liable to a poll tax 
of not less than fifty cents nor more than one dollar 
per annum.” 4 

The framers of the constitution probably had two 
purposes in view with regard to the poll tax—one, to 
secure a permanent source of revenue for public educa¬ 
tion, and the other, to purify the ballot box by limiting 
negro suffrage. In the latter connection McClure says: 
“The influx of negro voters into the electorate stimu¬ 
lated the convention to include the provisions that each 
voter shall give to the judges of election, where he of¬ 
fers to vote, satisfactory evidence that he has paid the 
poll taxes assessed against him for such preceding 
period as the Legislature may prescribe and at such time 
as may be prescribed by law; without which his vote 
cannot be received.” 5 

The Convention was restrictive in practically all its 
revisions, which is “a natural consequence—to curb 
recent governmental extravagances.” 6 

The general property tax remained unchanged in 

4 Art. II, sec. 28. 

5 Art. IV, sec. 1; Wallace McClure, State Constitution 
Making. 

C W. McClure, State Const. Making. 


14 


TAXATION IN TENNESSEE. 


principle. The clause dealing with this subject in the 
Constitution of 1834 7 included only four items— 
namely, lands, slaves, and “such other property as the 
Legislature may deem expedient;” “all property taxed 
according to its value”—the value to be determined by 
the Legislature; a tax on “merchants, peddlers, and 
privileges;” and “a tax on white polls.” 8 

Considerable opposition arose from the press of the 
state against the exemption of one thousand dollars’ 
worth of personalty, and many resolutions and amend¬ 
ments were offered, limiting the amount of exemption 
to a smaller figure, but the members steadily refused 
to adopt one providing for less than one thousand dol¬ 
lars. Those amendments offering exemptions as low 
as two hundred and fifty dollars lost overwhelmingly. 
By actual count, the one which was offered to exempt 
seven hundred and fifty dollars’ worth of personalty 
lost by a vote of 36 to 33. The final amendment which 
was adopted, permitting an exemption of one thousand 
dollars’ worth of personalty, passed by about the same 
majority as the one which provided for the exemption 
of seven hundred and fifty dollars’ worth of personalty 
was lost. In other words, the vote gradually increased 
in favor of exemption until the thousand dollars’ worth 
was reached, which amendment had the necessary ma¬ 
jority for its adoption. The all-inclusiveness of the 
clause caused them, however, to add a special list of 
exemptions, the most important forms of which were: 
all forms of property owned by the State, counties, 
cities and towns, which were used “exclusively for 
public or corporation purposes;” “such property as 

7 Art. II, sec. 28. 

8 Const, of 1834, Art. II, sec. 28. 


CONSTITUTIONAL PROVISIONS. 


15 


may be held for purposes purely religious, charitable, 
scientific, literary, or educationalthe direct products 
of the soil in the hands of the producer or his imme¬ 
diate vendee; 9 and all articles manufactured from the 
produce of the state, otherwise than for the purpose 
of paying inspection fees. 10 

The merchants’ tax also came in for a share of 
popular criticism at the time, particularly from business 
centers and from some of those who understood busi¬ 
ness conditions. A member of the House of Repre¬ 
sentatives made a lengthy, if not exhaustive, speech 
upon the general theme of inequality of the merchants’ 
tax. 11 He spoke in behalf of the growing cotton cen¬ 
ter of Memphis, showing, among other things, that a 
merchant of Tennessee was taxed one and one-half 
per cent on invoice capital, with an annual turnover of 
probably five times per year, which would amount to 
about seven and one-half per cent per annum; wherein 
a merchant in Kentucky under the same conditions 
would pay only about three per cent. This would cause 
discrimination in favor of merchants of neighboring 
states, and throw the merchants of Tennessee in an 
attitude of unjust competition. In spite of the oppo¬ 
sition the clause providing for the tax was re-incor¬ 
porated in similar wording to that of 1834, and to it 
was added: “The portion of a merchant’s capital used 
in the purchase of merchandise sold by him to non¬ 
residents and sent beyond the state, shall not be taxed 
at a rate higher than the ad valorem tax on the prop¬ 
erty.” 

9 Art. II, sec. 28. 

10 Art. II, sec. 30. 

11 Nashville Union and American, Dec. 30, 1869. 


16 


TAXATION IN TENNESSEE. 


The provision for the taxation of privileges, which 
became a very important source of revenue in the tax 
system, occurs only once in the constitution, and then 
in connection with the taxation of “merchants and ped¬ 
dlers.” The clause reads as follows: “The Legisla¬ 
ture shall have power to tax * * * privileges in 

such manner as they may from time to time direct.” 
The constitution itself makes no explanation of the 
meaning of the term “privileges,” as will be seen from 
the discussion of privilege taxation, 12 but this clause 
had, from the beginning, wonderful possibilities as a 
means of securing revenue. 

Another provision added to the general property 
tax clause was that “the Legislature shall have power to 
levy a tax upon incomes derived from stocks and bonds 
that are not taxed ad valorem!’ This was for the pur¬ 
pose of drawing revenue from holders of United States 
bonds. 13 

Other revisions of the constitution, which more 
nearly reflect the economic conditions of the times, are 
the sections forbidding state aid to private companies 
and municipalities, state ownership of banks or the 
stock of private companies or municipalities, the issu¬ 
ance of state bonds to any railroad defaulting in its 
interest payments on bonds previously loaned or having 
absolutely disposed of any of the same for less than 
par, and the requirement of three-fourth majority vote 
of the people before lending or giving in aid to any per¬ 
son, company, association, or corporation the credit of 
a county, city or town. 14 

12 See Taxation of Privileges, Ch. IV. 

13 McClure, State Const. Making, p. 60. 

14 Art. II, sec. 29. 


CONSTITUTIONAL PROVISIONS. 


17 


These acts of the Convention were, indeed, restrict¬ 
ive. In its effort to bring about restriction against “the 
arbitrary tactics of the reconstruction governments,” 
the Convention effected a reaction against the progress 
of the state, at a time, too, when progress was all that 
could redeem the state from its loss during the war. 
In this connection McClure says: “But that the addi¬ 
tional checks and balances should have been introduced 
into the governmental organization just at the time 
when railroads and other corporations were beginning 
to become so powerful as to call for state administra¬ 
tive control, when the number and complexity of gov¬ 
ernmental functions in other directions were on the eve 
of substantial increase, and when responsible financial 
management was becoming rapidly more imperative, 
impresses one as peculiarly unfortunate.” 

However true the above statement may be, a brief 
history of the credit system of the state during the 
thirty-five years preceding will plainly reveal the cause 
for the reaction. A strong feature of the Constitu¬ 
tion of 1834 was a provision for a “well regulated sys¬ 
tem of internal improvements,” 15 and under that sys¬ 
tem the state had lavishly lent its credit to railroads, 
etc., to the amount of $14,000,000 by 1861. Of course, 
the state never expected to have to pay this debt, and 
no doubt would not have been called upon to assume 
the obligation under normal conditions. But the war 
not only destroyed private property which would 
make a railroad pay, but destroyed much of the 
railroad property itself. The state was then compelled 
to assist the roads in re-building. 16 Then the “Brown- 

15 Const, of 1834. 

16 McGee, History of Tennessee, p. 232. 


18 


TAXATION IN TENNESSEE. 


low debt” increased the state debt by about $21,000,000. 
These, together with other forms of indebtedness, 
made a total state debt of about $41,000,000 at the time 
the Constitutional Convention was being held in 1870. 
No wonder, then, that the Convention restricted the 
power which made the above condition possible. 
Hence, the features of the Constitution of 1834, which 
made such extravagances possible, were entirely re¬ 
moved in the Constitution of 1870. 

The foregoing considerations have been largely in 
connection with the changes made in the Constitution 
of 1834 by the Convention. The following summary 
indicates the possibilities of taxation under the present 
constitution, both as to the revisions effected in 1870 
and provisions affecting finance in the preceding con¬ 
stitution, each of which will be stated fully in its own 
particular application in the succeeding chapters: (1) 
The provision for the general property tax includes 
the taxation of all property, real, personal, and mixed, 
except such as shall be expressly exempt. The excep¬ 
tions, including articles manufactured from produce of 
the state, will be considered in connection with general 
property taxation. (2) The constitution provides that 
the Legislature shall have the power to tax “mer¬ 
chants, peddlers, and privileges in such manner as 
they may from time to time direct.” This clause has 
been broadly interpreted, and because of its vagueness 
it has provided large sources of income. (3) Every 
male person over twenty-one years of age, except such 
as are expressly exempt, are required to pay a poll tax 
of not less than fifty cents nor more than one dollar, 
which shall be used for educational purposes. (4) The 
General Assembly is empowered to authorize local tax- 


CONSTITUTIONAL PROVISIONS. 


19 


ation, and all property shall be taxed according to 
value, upon the principles established with regard to 
state taxation. This provision was a restrictive meas¬ 
ure, and has been used restrictively to control munici¬ 
palities in matters of taxation and hence largely in 
other matters of local autonomy. (5) Appropriations 
of funds are to be made for public schools. (6) A tax 
shall be levied on stocks and bonds not taxed ad 
valorem , mentioned in connection with revisions of the 
constitution. 

Other provisions of a different nature are: (7) 
Prohibition of lending county, town, or municipal credit 
without the consent of a majority of the qualified 
voters; (8) prohibition on the state lending its credit 
or state ownership of stocks and the like; and (9) the 
regulation and restriction on the state in issuing bonds 
to railroads, and similar corporations. 

One other constitutional provision requires special 
consideration and emphasis. The importance of the 
clause makes it desirable to be given in full as follows: 
“All property shall be taxed according to its value, that 
value to be ascertained in such manner as the Legisla¬ 
ture may from time to time direct, so that taxes shall 
be equal and uniform throughout the state. No one 
species of property from which a tax may be collected 
shall be taxed higher than any other species of property 
of the same value.” 

No other clause in the constitution has been so great 
a stumbling block or handicap to the state, as that 
quoted above, in restricting the taxing system. The 
constitution not only fails to provide a means of classi¬ 
fication of property for taxation, but this provision ac¬ 
tually forbids that property shall be classified and taxed 


20 


TAXATION IN TENNESSEE. 


upon its relative merits. It is apparent that this limita¬ 
tion on the classification of property for taxation may 
mean practical confiscation of certain classes of prop¬ 
erty. Moreover, the part of the clause providing for 
the taxation of property according to its value has al¬ 
ways been impossible of realization. Consideration 
will be given to these points in connection with certain 
special forms of taxation in succeeding chapters. 

It will be noted that the provisions for taxation in 
the constitution as a whole, are characterized by vague¬ 
ness on the one hand and restrictions on the other. The 
characteristic of vagueness has been fraught with large 
possibilities in working out the system, and the restric¬ 
tions have largely retarded the state’s progress. From 
these fundamental concepts, though meagre and much 
hedged about by prohibitions, the State of Tennessee 
has built her somewhat elaborate but typically southern 
financial system. 


CHAPTER II. 


GENERAL PROPERTY TAXATION. 

The Place Of The General Property Tax In The 
Tax System Of Tennessee. 

In Tennessee, as in many other commonwealths of 
the United States, the general property tax is funda¬ 
mental and is the principal source of revenue. The 
general property tax is supplemented by business taxes, 
licenses, and fees. A distinguishing characteristic of 
the system, however, is a carefully worked out plan of 
privilege taxes based upon the exercise of various 
forms of occupation and business. There are various 
special corporation taxes, similar in nature to the priv¬ 
ilege tax on individuals, poll and inheritance taxes, 
specific taxes on transfer of realty and on litigations, 
and a special tax on registered mortgages. 

The public debt acquired by the state previous to 
and during the reconstruction period probably had a 
fraudulent and unprofitable origin in so far as value 
received for the large expenditures were concerned, 
but the fact that it existed and constantly threatened 
the credit of the state caused the various administra¬ 
tions to search out new sources of revenue whereby the 
state might relieve itself of the debt and at the same 
time meet its increasing expenses. In fact, the eco¬ 
nomic pressure due to the public debt at different 
periods caused much consideration to be given, not 
only to diversification of the tax system, but also to a 
carefully worked out system of tax collection. The 
influence of the public debt was especially felt in this 
particular until it was eliminated by the famous “fifty 


22 


TAXATION IN TENNESSEE. 


and three” act of 1883, 1 whereby the state debt was 
funded and removed as an active political issue from 
the state. 

The railroads, then the telegraph companies and 
other public utilities, were the first to supplement the 
general property tax. Later the insurance premium 
tax and inheritance tax were added, both of which 
have contributed a correspondingly large proportion of 
the state’s income. In fact, all the special forms of taxa¬ 
tion, discussed fully in succeeding chapters, have 
served to minimize the importance of the general prop¬ 
erty tax in Tennessee’s taxing system. 

The general property tax system in the state has 
also been modified by the possibility of “double taxa¬ 
tion” in the laws. This influence was especially felt 
previous to 1889 in connection with corporation taxa¬ 
tion. Where the general property tax failed to reach 
certain classes of business property, the principle of 
double taxation was applied, which resulted in a sys¬ 
tem, not only of the taxation of certain forms of prop¬ 
erty under two or more separate heads, but also it 
caused to evolve certain forms of privilege taxes. 
Some instances of the latter were intangible property 
belonging to railroad and similar corporations and mer¬ 
chant corporations. However, the influence of the 
principle of double taxation was practically eliminated 
by acts of 1889 and 1890, except in so far as the prin¬ 
ciple was applied by a system of privilege taxes. 

Another characteristic of Tennessee’s system of 
taxation, as affecting the general property tax system, 
is the constitutional exemption of $1,000 of personalty. 
This exemption virtually operates to produce a progres- 

1 McGee, History of Tennessee, p. 244. 


GENERAL PROPERTY TAXATION. 23 

sive tax rate. For example, if A, B, and C, respect¬ 
ively, own $1,500, $3,000, and $5,000 worth of person¬ 
alty and the rate is 50c on the $100, they will pay taxes 
proportionately at the rate of 16 2-3c, 33 l-3c, and 40c. 
This plan, therefore, operates in favor of the small 
property owners, for the more personal property an 
owner controls, the greater is his corresponding rate of 
taxation. 

Counties and municipalities are subservient to the 
state in matters of taxation. Municipalities are re¬ 
quired to copy the assessment values from the certi¬ 
fied lists, unless by special act they are permitted to 
assess and collect their own revenue for local pur¬ 
poses. Only in recent years has sentiment grown suf¬ 
ficiently strong to make it permissible for local taxing 
districts to carry out to an appreciable extent much 
needed local improvement. 

If the system of privilege taxes was worked out 
more in correspondence with income, instead of being 
graduated upon the basis of county population or mile¬ 
age, as in the case of railroads and other corporations 
similarly organized, the tax system as a whole would 
approximate more nearly the original purpose of the 
general property tax system in the state. 

Assessment. 

Historical Development. A word is necessary to 
explain the method of dealing with the development 
of the assessment system from 1870 to the present 
time. A discussion of the minute changes of the sys¬ 
tem in the various acts of the Legislature would be un¬ 
interesting to the casual reader and at the same time 


24 


TAXATION IN TENNESSEE. 


involve too much technical and legal phrasing, so com¬ 
mon in the tax digest. At the same time, the nature 
and plan of the general property tax system are more 
or less familiar to every taxpayer; therefore for the 
purpose in hand it is deemed sufficient to select repre¬ 
sentative periods in the history of taxation under the 
present constitution and point out the salient features as 
indicated by the statutes for those particular periods. 
For this purpose the acts of 1873, of 1895, and the pres¬ 
ent system under acts of 1907 are chosen. Any other 
mention of important changes in the plan of assess¬ 
ment will be incidental to the discussion of the acts for 
the years named. In fact the laws of 1895 are selected 
as the pivoting point for the development of the as¬ 
sessment system previous to that time and the changes 
occurring afterward. 

In acts of 1873 the provisions as to what property 
should be taxed were made to conform to the require¬ 
ments of the constitution, and were essentially as fol¬ 
lows: all property, real, personal, and mixed shall be 
taxed; but the legislature may exempt such as may 
be held and used exclusively for public purposes, in¬ 
cluding that employed for religious, charitable, scien¬ 
tific, and like purposes, not exceeding $50,000 in value; 
$1,000 worth of personalty in the hands of each tax¬ 
payer; and the direct produce of the soil in the hands 
of the producer or his immediate vendee. In addition 
cemeteries and monuments of the dead were added to 
the list of constitutional exemptions. 

The basis of assessment under the act was as fol¬ 
lows: The time of ownership for purposes of assess¬ 
ment was fixed at January 10. Real property was as¬ 
sessed at actual value “less 15 per cent in gross.” The 


GENERAL PROPERTY TAXATION. 


25 


preceding acts 2 provided for the assessment of land 
and town lots by deducting 10 per cent from half and 
20 per cent from the other half of “sale value,” the re¬ 
mainder of which should be the “cash value.” The 
basis of the personalty assessment was made the value 
at which it would be appraised in payment of a just 
debt. The situs of all property was to be in the ward 
or district where assessed, except that shares of stock 
in banks, corporations, or joint stock companies, should 
take the situs where the business enterprise was lo¬ 
cated. 

The usual description of realty and personalty was 
required, such as number of each lot and width in front 
feet, the surveyor’s number for land tracts, and the 
number of acres per tract. Itemized personalty sched¬ 
ules included the usual forms of personalty, such as 
corporation stock, stocks of merchandise, notes and 
due bills, bonds and securities, live stock, machinery, 
the amount of income derived from United States 
bonds, etc. The last item is peculiar and will have 
separate treatment in another connection. Banks and 
other corporations were assessed in the manner de¬ 
scribed in connection with taxation of corporations 
and banks. 3 By this act merchants were required to 
file statements with county court clerks, but assess¬ 
ments were made by the tax assessor, 4 If adequate 
returns were not made according to law, the proper 
officer—the county judge, clerk and trustee, or tax col¬ 
lector—was empowered to require adequate returns 

2 Acts 1871, ch. 59. 

3 See Corporation Taxation; also Bank Taxation. 

4 See Merchants’ Tax. 


26 


TAXATION IN TENNESSEE. 


from the taxpayer with the aim of securing uniform as¬ 
sessments. 5 

The assessor was appointed by the county court, 
one for each civil district, except in cities of over 20,- 
000 inhabitants. In such cities there was one assessor 
for each ward. This plan of having several assessors 
for each county, as instituted in the beginning, has been 
one of the greatest defects of the assessment system of 
the state, as will be amply shown later. 

The assessor was required to assess the property in 
some regular order, and to see each tract or parcel of 
land, or otherwise obtain satisfactory information in 
regard to it. The returns were to be made upon oath 
by the taxpayer, and the tax lists were to be entered in 
the assessment book and returned to the county clerk’s 
office for the use of the county court. Returns that 
seemed doubtful should, by law, be held up for special 
investigation and assessment by the assessor. A pen¬ 
alty of twenty- five per cent of the value was levied in 
case of failure or refusal on the part of the taxpayer 
to make returns. 

The various district assessors organized as a board 
of equalization, whose duty it was to examine and 
equalize the various assessments. There was no higher 
board of equalization and the board’s decision was 
final. From the tax books certified by the board of 
equalization the county court clerk was required to 
make up the tax books in practically the same form 
and manner as those of the present, and to furnish an 
aggregate statement to the Comptroller of the Treas¬ 
ury. 

5 See Corporation Taxation. 


GENERAL PROPERTY TAXATION. 


27 


The assessor was also required to list all persons 
and business enterprises liable for privilege taxes and 
return the same to the county clerk. Railroad and tele¬ 
graph companies were at first included in the latter 
class, as they were not at that time taxed upon realty. 6 

The tax assessors and county court clerk, for per¬ 
forming their duty in making assessments, were al¬ 
lowed such compensation as might be determined by 
the county court, which was in no case to exceed fifteen 
cents for each person listed for property and privilege 
taxes and five cents for each person listed for a poll 
tax only. 

Under this act municipal corporations were prohib¬ 
ited from levying a tax upon moneyed capital, or upon 
money loaned or invested in banks or any other corpo¬ 
ration exceeding the amount of tax levied by the state. 
This provision was strongly opposed by those desiring 
to shift unduly the burden of taxation to certain kinds 
of business, and its adoption merely emphasizes the 
desire of the legislators, not only to conform to the 
letter of the constitution that all property shall be taxed 
equally, but also to protect the business interests of the 
state which needed protection so much at the time. 7 
The restriction is significant, too, in the light of rela¬ 
tionships existing between municipal corporations and 
the state, which were not well defined at this time. 
Later acts defined the status of such corporations by 
depriving them of practically all initiative and local 
privilege except as expressly conferred by the General 
Assembly. The state has been very jealous of local 
autonomy, and local districts have been very zealous in 

6 See Railroads. 

7 Banner, March 14, 1873. 


28 


TAXATION IN TENNESSEE. 


trying to obtain it. But this is a subject for another 
thesis, and only concerns us in its relationship to tax¬ 
ation, which will be pointed out from time to time. 8 

The brief outline presented above shows that the 
Assembly of 1873 made a bold and fair attempt to pro¬ 
vide a just and equitable law for the assessment of 
revenue for state and county purposes. 

Acts of 1875 made no change in the method of as¬ 
sessing and collecting taxes upon personal property, 
privileges, and polls, except that the time of ownership 
for all property should be April 1, instead of January 
10. The provisions of this act will not be considered 
except in connection with the assessor and the method 
defined for the assessment of real estate. 

The assessor was to be paid in the same manner as 
provided by acts of 1873, except that no assessor 
should be paid over $1,000 per annum. The compen¬ 
sation was to be paid by the county and municipality 
in the proportion that the value of property assessed 
by each bore to the whole assessment. Each assistant 
should receive $1.50 a day to be paid by the county, if 
no municipality was interested in the assessment, or 
jointly by county and municipality, if each was inter¬ 
ested, in the same manner as defined for the county 
assessor. 

The county clerk was to be paid five cents per one 
hundred words for this additional work of making up 
tax books. A similar method prevails in Arkansas at 
present; the assessor being paid so much for the num¬ 
ber of figures used in making the tax books. For this 
reason some assessors in that state make tax extensions 

8 See various acts beginning 1872, ch. 12.; Acts 1879, ch. 
127. 


GENERAL PROPERTY TAXATION. 


29 


to include the fraction of a cent, in order to employ a 
maximum number of figures in their calculations. The 
fallacy of such a plan of remuneration of county of¬ 
ficers is evident, not to say anything of the waste of 
time in counting the words to determine the amount 
of compensation. 

There was to be only one assessor for each county, 
and he was to be elected by the county court for a 
term of four years. Each assessor was allowed two 
assistants for each ward having taxable realty worth 
$200,000 and over, and one assistant for all others. 
They should proceed in the manner of previous asses¬ 
sors in assessing realty and make returns of tax lists 
to the county court clerk, who should make and pre¬ 
serve the assessment roll. This roll was to be the 
only assessment of real estate, whether for state, 
county, railroad or municipal purposes. Assessment 
of railroad property as realty was specially provided 
for, 9 but such property is better referred to in connec¬ 
tion with the acts of 1881. Acts of 1877 promptly re¬ 
pealed the clause of the previous act providing for only 
one assessor for each county, and restored the original 
plan of one for each district and ward. Under the act 
of 1875, the decision of the assessor and his assistant 
was virtually final in the assessment of property. The 
act of 1877 restored, also, the old board of equalization 
composed of district assessors. It is probable that the 
arbitrary power of the assessor in a measure accounts 
for the repeal of the act. Salaries of assessors and 
the county court clerk were slightly modified. Acts 
of 1877 also provided that the schedule should be 
made on a blank book, instead of upon prepared forms. 

9 See Railroads; Acts 1875, ch. 80. 


30 


TAXATION IN TENNESSEE. 


Detailed explanation is made in connection with these 
crude methods for the sake of emphasis. 10 

Acts of 1881 11 were virtually compilations of the 
assessment act of 1873 and subsequent amendments. 
However, there were a few changes which deserve 
consideration, together with acts of the second extra 
session of 1882 and regular session of 1883. These 
changes should be considered in connection with as¬ 
sessment acts of 1873, for reasons named above. 

In the first place, the $50,000 limitation of exemp¬ 
tions for educational, charitable, religious, and like 
institutions, was repealed. The result was that all 
such institutions were exempted upon all values of 
property not used as a source of private income. 12 
By acts of 1881 the time of ownership was placed 
back at January 10, as provided by acts of 1873. Real 
property was assessed at market value, less 10 per cent, 
but acts of 1883 omitted the deduction and supplied 
“cash value” as the basis for both realty and person¬ 
alty valuation. The latter wording continues in the 
statutes to the present time. 

Act of 1881 required the assessor to furnish sched¬ 
ule blanks to the taxpayer, which was a change from 
the blank book forms provided in 1877. These blanks 
were to be furnished to the assessor by the Comp¬ 
troller, and were not to contain synopses of the laws, 
with exemptions, as required by similar blanks in 
1873. There was to be one assessor for each district 
in the county and one for each ward in cities or towns 
of over 2,000 inhabitants. Former acts had designated 
cities of 20,000, instead of 2,000 as in the latter law. 

Acts 1877, ch. 73. 

11 Ch. 171. 

12 See Extra Session 1882, ch. 4. 


GENERAL PROPERTY TAXATION. 


31 


Another important change was that notes, due bills, 
etc., should be deducted where incurred in conducting 
the regular business out of which arose the notes, etc. 
This was intended to relieve merchants who often 
borrowed money for purchasing stock or bought goods 
on credit and in turn sold them for credit. Such notes 
were to be deducted as specially provided in the law. 

In 1883 the compensation of assessors was again 
changed. At this time both assessors and clerk should 
receive ten cents per one hundred words, four figures 
counting a word. However, in no case were they to 
receive over fifteen cents for each person having tax¬ 
able property listed, and five cents for each poll tax. 
The assessors, while sitting as a board of equalization 
were to be paid per diem as is allowed jurors in the 
state. This was probably about one dollar a day. 

Localized property belonging to railroad and tele¬ 
graph companies was assessed by local assessors the 
same as other realty. 13 

The acts of 1881 provided for the assessment of 
taxes for state and county purposes, but the act of 
1883 included “municipal” assessments also. The act, 
however, was not designed to prevent the cities and 
towns having special charters of incorporation from 
assessing and collecting taxes for municipal purposes, 
provided such cities had their own collectors. This 
has been the general policy of the state in connection 
with municipal taxation; and for special acts of taxa¬ 
tion, such as voting bonds in certain cases, an act of 
the Legislature is required. 

The compensation of the assessor was graduated 

13 « See Railroads; Acts 1882, ch. 16. 


32 


TAXATION IN TENNESSEE. 


on the basis of county population. In counties of 
40,000 inhabitants or over one-tenth of one mill was 
allowed; and in counties less than 12,000, two-fifths 
of a mill. Intervening gradations were fixed corre¬ 
spondingly. The assessor was to receive additionally 
five cents for each poll and five cents for each privilege 
listed. The members of the board of equalization, 
except the assessor and county judge, received $2.50 
a day. The duties of the county board of equalization 
were not materially different from those under pre¬ 
vious acts. There were few other significant changes 
of the assessment plan other than those of corpora¬ 
tions and businesses which are treated fully in con¬ 
nection with corporation taxation. 14 

Acts of 1887 provided for one assessor for each 
county elected for four years and ineligible to suc¬ 
ceed himself, who was permitted to appoint one or 
more deputies. Such assessors and three freeholders 
appointed by the assessors and county judge, together 
with the county judge, constituted the county board 
of equalization. 

Acts of 1889 exempted parsonages, not exceeding 
$5,000 in value, and in that act the assessors were 
omitted from the board of equalization and another 
freeholder was added, thus making the county board 
of equalization consist of the county judge and four 
freeholders. 

The acts providing for one assessor and a more 
disinterested board of equalization were commendable 
in this respect, and without doubt the new arrange¬ 
ment was superior to the former district assessors 
constituting the board of equalization. The principal 

14 See Corporation Taxation. 


GENERAL PROPERTY TAXATION. 


33 


defect of the new machinery of assessment was that 
the assessor could only hold his office one term. It is 
conceivable and altogether probable that the average 
assessor would require at least two years in office to 
fully qualify himself for his duties. And to make 
a change compulsory was contrary to the principle 
of securing efficiency through experience. 

It might be said in the above connection that the 
average assessor in the southern states is rarely suf¬ 
ficiently involved in politics, that is as a leader, to 
become dangerous because of a long tenure in office. 
It is conceivable that he may often be easily influenced 
in the performance of his duties, but probably a new 
man would be more susceptible in this respect than 
one who had served a longer term. 

As set forth in the beginning, the acts of 1895 
are considered a pivotal point for discussing the devel¬ 
opment of the assessment system before and after that 
date. The period of twenty-five years preceding was 
characterized by changes and experiments with refer¬ 
ence to assessment machinery. In two instances only, 
one county assessor had been provided by law for 
each county, and in as many instances the district 
assessors performed the important duty and assumed 
the responsibility of recording for taxation the millions 
of dollars' worth of taxable property in the state. 

Thus the acts of 1895 mark the turning point in 
the direction of the present system as set forth by 
acts of 1907, and laws amendatory thereof. Since a 
brief discussion has been made of former laws as 
a background to present history, it conforms to the 
purpose in hand to discuss conjointly the acts of 1895- 
and the present statutes providing for general property 


34 


TAXATION IN TENNESSEE. 


assessments. Thus the operation of the present plan 
will be developed in this discussion upon the back¬ 
ground of reforms of 1895. 

For this reason all property of railroad, telegraph, 
and telephone companies, became assessable by the 
State Board of Tax Assessors, which came to be 
identical with the Railroad Commission two years 
later. 15 By this act all localized property of such com¬ 
panies was not assessed any longer by local assessors. 
However, all other corporation assessments were still 
assessed by local assessors, who had practically the 
final decision with regard to the value of all local 
assessments. Because of inefficiency on the part of 
the assessors, as well as on account of their desire 
to favor local community interests, there was, no doubt, 
much injustice and inequality in the assessment of 
property of railway, telegraph, and telephone com¬ 
panies. So the need was felt for a higher board of 
equalization as well as for various minor changes in the 
assessment laws. 

In acts of 1873 the provisions as to what property 
should be taxed were made to conform to the require¬ 
ments of the Constitution, and were essentially as 
follows: that all property, real, personal, and mixed, 
must be taxed; but the Legislature might exempt such 
property as was held and used exclusively for public 
purposes, including that used for religious, charitable, 
scientific, and like purposes, not exceeding $50,000 
in value, $1,000 worth of personalty in the hands of 
each taxpayer, and the direct produce of the soil in 
the hands of the producer or his immediate vendee. 


15 See Railroad Taxation. 


GENERAL PROPERTY TAXATION. 


35 


In addition, cemeteries and monuments of the dead 
were added to the list of constitutional exemptions. 

The most important provisions of the acts of 1895 
and 1907 may be considered under the following gen¬ 
eral heads: exemptions, realty and personalty assess¬ 
ments, special forms of realty and personalty, polls, 
county board of equalization, and State Board of 
Equalization. 

Exemptions. Previous to 1895 provisions in the 
statutes dealing with exemptions were worded largely 
after the same provisions in the constitution. 16 All 
exceptions have been noted in the foregoing discus¬ 
sion. Acts of 1895 specially defined the nature of 
exemptions of property used for educational, charita¬ 
ble, and like purposes, by requiring the payment of 
taxes upon all or parts of such property used in secular 
business. 

A precaution was also taken in the 1907 act with 
reference to preventing the transfer of personalty to 
minors by parents in order to have the benefit of more 
than $1,000 of personalty exemption. In such cases 
of transfer the parent or guardian was required to 
appear before the assessor and board of equalization 
to establish a bona fide transfer. Acts of 1907 also 
removed the $5,000 limitation on exemptions of church 
parsonages, and the $10,000 limitation of property 
belonging to county fairs. In case any of these were 
used for secular purposes, they should pay taxes only 
in proportion to such use. 

All other exemptions were the same as defined in 
the preceding pages except that the word “resident” 
was supplied in the clause providing for $1,000 worth 


16 See Constitutions. 


36 


TAXATION IN TENNESSEE. 


of personalty exemption. This new wording is retained 
in the present statutes and serves the purpose of pre¬ 
venting persons not naturalized and persons claiming 
their citizenship elsewhere, from receiving exemption 
of $1,000 worth of personalty. 

Acts of 1895 provided for one assessor for each 
county of 60,000 population or over and population 
between 50,000 and 55,000. In the remaining coun¬ 
ties each civil district had the district assessors as 
before. The provision was merely designed to give 
one county assessor for the counties of Davidson, 
Shelby, and Hamilton. This plan relative to assessors 
continued in effect until 1907, when one assessor for 
each county was elected by the qualified voters to hold 
office for four years, and the office of district assessor 
was abolished. 17 

The salary of district assessors by act of 1895 was 
determined by the county court. Under the present 
statutes 18 in counties under 60,000 population the 
assessor’s salary is determined in the same manner, 
except that it is subject to certain limitations. “In 
no case shall an assessor be paid over 25 cents for 
each person assessed with real and personal estate 
(the personal exceeding $1,000) and poll, 25 cents 
for each person assessed with personal estate only (ex¬ 
ceeding $1,000 only) and poll, and 15 cents for each 
person assessed with real estate only, and 15 cents for 
each additional assessment of separate realty, 25 cents 
for each person assessed with real estate and poll, 
15 cents for each person assessed with personal estate 
only (exceeding $1,000), 20 cents for each person as- 

Acts 1907, ch. 602. 

is Acts 1907, ch. 602. 


GENERAL PROPERTY TAXATION. 


37 


sessed with real estate and personalty only, and 5 cents 
for each person legally listed for poll only.” 

Under the present acts, in counties having a popu¬ 
lation of over 120,000 the assessor receives $4,000, 
and in counties of population between 60,000 and 120,- 
000 he receives $2,500. The salary of a county asses¬ 
sor, however, may be changed or modified by special 
act of the Assembly, which frequently has occurred. 

It is the duty of the assessor to list the $1,000 
exemption of personal property on all exemption 
blanks. It is also required by acts of 1919 that county 
assessors collect certain information in the interest of 
agriculture. 18 * When one county assessor finds that 
he cannot properly make assessments by present laws 
he may employ a deputy or deputies, except that in 
no case may the aggregate compensation of his depu¬ 
ties exceed that of the assessor himself by fifty per 
cent. 

The various duties of the tax assessor, other than 
those previously referred to, are too commonplace for 
enumeration. However, certain points may be worth 
considering. Acts of 1895 provided that county court 
clerks should assess merchants for taxation, only the 
names of the firms being listed by the assessor. Pre¬ 
viously the assessors both listed the privileges and 
made the assessment. 

Real and Personal Property Assessments. Both by 
acts of 1895 and 1907, real estate is assessed biennially; 
and personalty, privileges, and polls, annually. In case 
there is a change in the value of real estate amounting 
to $200, such correction and adjustment of value is to 
be made each year. All property must be listed 

18 * Acts 1919, ch. 174. See Recent Reforms in Taxation. 


38 


TAXATION IN TENNESSEE. 


whether subject to exemption or not. In case the tax¬ 
payer refuses to list, no exemption is allowed. 

By the statutes, the assessor must go upon the 
premises and examine the realty to be assessed, and 
if he fails to do so, he is subject to a penalty. All 
fiduciary agents are expected to return property held 
in trust separately from all others, such property being- 
subject to taxation and exemption the same as other 
property of the same class. 

Notes, choses in action, etc., must be returned for 
taxation before suit can be made for collection. That 
is to say, unless such property is listed for taxation, 
in case the suit is entered for collection of same, the 
owner is liable for the total court cost in addition to 
the taxes which may be levied on such instrument. 
Of course, the purpose of the provision here is to force 
all owners to list such intangible property for taxation 
or else run the risk of embarrassment and additional 
cost in case of forced collection of the proceeds of 
such instruments. 

The schedules furnished by assessors to property 
owners are not materially different now from those of 
1895. The principal difference is in the general word¬ 
ing of the former so as to include all classes of prop¬ 
erty without detailed enumeration of items. A good 
example of this is the case of an item in the schedule 
in 1895 for livestock, which enumerated every class of 
animal, including dogs. The same item in the schedule 
of 1907 (the present one) appears as “all livestock, 
including dogs.” The need of this general wording is 
evident from the fact that the list of the various kinds 
of property to be enumerated on the assessment list 
has increased to unwieldy proportions. 


GENERAL PROPERTY TAXATION. 


39 


An important change in the act of 1895, re-enacted 
in subsequent laws, was in the situs of property held 
in trust. Of course, realty in any case has been and 
still is assessed for taxes where located. But all 
property, both realty and personalty, was assessed 
where located or kept by acts previous to 1895, in the 
same manner as realty. By acts of 1895, personal 
property of minors, married women, and lunatics, in 
the hands of guardian or trustee was assessed in the 
county, ward, or district, where such minor, etc., 
resided. If the lunatic was confined in an asylum, the 
property should be assessed at the last place of resi¬ 
dence. In case of property of deceased persons in 
the hands of executors, etc., such property was assess¬ 
able to the person in the charge of such property at 
the place where the deceased last resided. Both in 
the case of minors, etc., and deceased, where non¬ 
resident, the property is assessed where the personal 
representative resides. What the real effect of the 
change is can only be surmised. The situs of intangible 
property belonging to banks, corporations, etc., is 
treated in connection with those special subjects of 
taxation. By present laws all personalty loaned, 
pledged as collateral, or out of the possession of the 
owner, either within or without the state, shall be listed 
for taxation by the owner, and the taxpayer, in making 
out his schedule, shall state the amount of insurance 
he carries on his personal property. 

Special Forms of Realty and Personalty. From the 
beginning of taxation under the present constitution, 
the method of taxing steamboats and ferries has re¬ 
mained practically unchanged. They are taxed ad 
valorem upon the value of boat or ferry and equipment 


40 


TAXATION IN TENNESSEE. 


just as other personalty. If they operate wholly or 
partially within the state, they are taxed in proportion 
to the interest of the owner within the state. In case 
the boat or ferry is operated by a corporation, of 
course the owner is subject to the corporation tax 
in the same manner as all other corporations. 

Mines and timber in Tennessee are not assessed 
scientifically. A scientific assessment would probably 
be ruled unconstitutional. However, there is no pro¬ 
vision in the constitution against special assessment of 
such forms of property. The values of mines and 
timber are estimated by the owner and assessor; they 
are assessed separately from the land in case of sep¬ 
arate ownership. Lumber, whiskey, and the like, are 
not assessable in the hands of the manufacturer, when 
manufactured from produce of the state. However, 
the privilege of such manufacturing is assessable, as 
well as the manufactured goods in the hands of the 
purchaser. Various revenue and assessment laws have 
carried the provision that all bonds not taxed ad 
valorem shall pay 5 per cent upon the income thereof. 
This is the only resemblance to an income tax in the 
statutes of Tennessee. Laws antecedent to 1907 made 
no exception to United States bonds. The law operated 
in this way: in listing property for assessment the tax¬ 
payer was supposed to return the income upon bonds 
not taxed ad valorem. 19 

The unsuspecting taxpayer, in most instances,— 
however, not the large investor,—was led to list in a 
special way this property for taxation. However, the 
Supreme Court in 1905 made a decision invalidating 
this procedure of assessment by declaring that “the 


19 7 Pickle, 52. 


GENERAL PROPERTY TAXATION. 


41 


income as interest on United States bonds cannot be 
taxed as such by the state government, and a statute 
providing for such taxation is void and non-enforce- 
able.” That is to say, the interest does not become 
taxable immediately upon being paid into the hands 
of the bondholder, and he is not bound to return for 
taxation the amount received therefrom, except, of 
course, as a part of the amount of money on hand 
January 10. By consequence of this decision and 
opinion the assessment acts since have specially ex¬ 
empted income from United States bonds from taxa¬ 
tion as such. 

The county court clerk, as a general proposition, 
has in charge such assessments of merchants and 
privileges and the county trustee all other taxes, and 
when such assessment is made it shall constitute the 
final assessment and shall be collectible as other taxes. 20 

Poll Tax. The poll tax provision in all assessment 
laws, has conformed to the constitutional provision; 
namely, that every male citizen, except such persons 
as may be exempt because of age or other infirmity, 
shall be liable to a poll tax of not less than fifty cents 
nor more than one dollar. Acts of 1873 upon this 
subject provided that all male inhabitants, between 
the ages of 21 and 50 years, except such persons who 
were deaf, dumb, blind, and incapable of labor and 
earning a livelihood, were liable for a poll tax of one 
dollar. This act raised the tax from the constitutional 
minimum of fifty cents in acts of 1871 21 to the maxi- 

20 Note: As to hearings in case of appeal from back or 
reassessment, see above in connection with State Board of 
Equalization; Acts 1907, ch. 602. 

21 Ch. 26. 


42 


TAXATION IN TENNESSEE. 


mum of one dollar, at which amount it has since 
remained. 

Acts of 1895 changed the wording of the poll tax 
clause so as not to exempt those who can or do earn 
a livelihood. Under the act, persons deaf, dumb, or 
blind are not assessable, but to come within the mean¬ 
ing of the law they must be totally deaf, dumb, or 
blind. Acts of 1907 replaced the phrase “of earning 
a livelihood,” and in the latter act fixed the 10th day 
of January as the date of liability or exemption of the 
poll tax. The poll tax is collectible by the county 
trustee, and the total amount appropriated for 
“common-school” purposes. It shall be paid by the 
taxpayer, where liable, at the same time or before he 
pays his property tax. According to law no person 
shall be receipted for his property tax until he has 
paid his poll tax. If the trustee violates this provision, 
he shall be liable for the amount of all such delinquent 
poll taxes. The wording of the law upon this point 
is specific, but it is notably and promiscuously violated 
without consequent penalty. It is probably true that 
the collection of poll taxes is manipulated in some 
instances in order to control the ballot box in local 
elections. There is a penalty of not less than $100 
nor more than $500 for the issuance or printing of a 
counterfeit tax receipt. 

County Board of Equalization. Under acts of 1895 
the county board of equalization was constituted as 
before; namely, of the county judge, and four free¬ 
holders. The duty of this board was to compare and 
equalize assessments, hear complaints, and make cor¬ 
rections of clerical mistakes. In case the assessment 
of a taxpayer’s property was raised, notice was served 


GENERAL PROPERTY TAXATION. 43 

upon him by the sheriff or constable, for which such 
officer received 25 cents to be paid by the county. 
The board might cause to appear and testify two wit¬ 
nesses named by the taxpayer in an effort to establish 
the contested value of the property. 

The county board of equalization under the act 
also had the power to add assessments to the lists 
presented by the assessor. The members of this board 
received each $1.50 a day for each day spent in the 
performance of his duties. The board, however, met 
the first Monday in June and was limited to four days’ 
work, unless specially required to do otherwise by the 
county judge, and in no event could they remain in 
session longer than the last Saturday in June. That 
is, they could not remain in session longer than four 
weeks. 

The county board of equalization under present 
statutes 22 is constituted and has similar duties to those 
conferred upon the preceding boards, except that the 
present board has five members elected by the county 
court instead of four, and the county judge is not a 
member under the present act. Moreover, the county 
board of equalization, under the present law, has large 
powers of investigation in case of doubt as to the 
assessed value of property, the enumeration of which 
is better omitted here. A concession is made to large 
and populous municipalities in the more recent act 
by allowing two of the five members of the county 
board of equalization to be appointed by the city coun¬ 
cil. The board of equalization has the special duty 
and requirement of reporting upon efficiency of the 
assessor to the district attorney, and furthermore of 


22 Acts 1907, ch. 602. 


44 


TAXATION IN TENNESSEE. 


submitting a report of all values changed and corrected 
to the State Board of Equalization. It is doubtful if 
the duty of the county board of equalization to report 
incompetent and defaulting assessor has been observed, 
except perhaps in extreme cases. 

State Board of Equalization. By acts of 1895 the 
State Board of Tax Assessors, whose duty it was to 
assess property of railroads, telegraph, and telephone 
companies, had the additional duty of equalizing the 
tax aggregates turned over to the comptroller by the 
various county clerks. This board not only had the 
power of equalizing the taxes as between the various 
counties, but also between wards and districts within 
the same county. Equalization between counties or 
different districts within the same county was effected 
by a per cent raise or reduction in the tax aggregates. 
This method of equalizing, however, was repealed in 
1897, and had not appeared in the statutes again until 
the recent tax reform in 1919. 23 

The members of the State Board of Tax Assessors 
and Equalizers were appointed by the Secretary of 
State, Comptroller, and Treasurer, one from each 
grand division of the state, but acts of 1907 provided 
that the Secretary of State, Treasurer, and Comptrol¬ 
ler, should constitute the State Board of Equalizers. 
The duties of this board were, up to 1919, similar to 
those of the Board of Assessors and Equalizers, pre¬ 
viously referred to, which may be summarized as fol¬ 
lows: (1) To serve without extra compensation; 
(2) to compute the values of all property within their 
jurisdiction according to ‘'actual cash value;” (3) 
during the biennial session to receive from any tax- 

23 Acts, 1919, ch. 1. 


GENERAL PROPERTY TAXATION. 


45 


payer written complaint upon the ground that other 
property has been assessed at less than actual cash 
value or at a less percentage of value than his own; 

(4) to equalize, raise or reduce the assessed value of 
property so as to conform to the actual cash value; 

(5) also to equalize the assessments of all properties 
within the state, other than property equalized by the 
Governor, Secretary of State and Treasurer; namely, 
distributable and localized properties of railroad com¬ 
panies, and distributable properties of telegraph and 
telephone companies, 24 however, such equalization was 
made in connection with individual assessments; 25 (6) 
the action of the Board is final as to assessment value 
of properties equalized by it. The Board also may hear 
appeals from back or re-assessments made by revenue 
agents, county trustees, and county court clerks, and 
in case the assessments of counties, districts, etc., are 
raised or lowered the Board shall notify them, and 
give instructions as to corrections desired. 

Conclusion. There are two very common practices 
among assessors which are openly contrary to the 
statutes: one is not going upon the premises of the 
taxpayer and taking a sworn statement of the value 
of property, and the other is the assessing of the prop¬ 
erty at less than its “cash value.” 26 

Assessments, as herein described, are made for 
state, county, and municipal purposes. It is definitely 
provided by acts of 1895 that tax books of municipali¬ 
ties and taxing districts shall be copied from the state 

24 See Railroads, etc. 

25 See discussion of Ch. 1, Laws of 1919. 

20 See Tax Digest of 1895; See Recent Reforms in Taxa¬ 
tion. 


46 


TAXATION IN TENNESSEE. 


and county tax books after the State Board of Equali¬ 
zers has approved them. Practically the same provi¬ 
sion appears in acts of 1907, and such is the present 
practice, except where special acts of the Legislature 
grant special privileges to taxing districts with refer¬ 
ence to the assessment and collection of taxes for 
municipal purposes. 

Certain states provide the tax rolls to be made in 
duplicate and a copy filed in the Comptroller’s office. 
The laws of Tennessee from the beginning have only 
required a statement of the tax aggregate to be filed 
with the Comptroller of the Treasury. This aggregate 
consists of the total value of realty in incorporated 
districts and aggregate value of all other realty and of 
personalty together with the amount of taxes to be col¬ 
lected. This statement has been required by most laws 
to be filed not later than November 1. 

By acts of 1907 back assessments of property may 
be made (1) when it has been omitted or escaped 
taxation; (2) when it has been assessed by assessor 
or computed by Board of Equalizers at less than actual 
value because of misrepresentations, fraud, etc.; (3) 
where the owner induces an assessment at less than 
actual cash value by fraudulent methods; and (4) 
when the agent or owner refuses to return or list 
property for assessment. In above cases, such back 
assessments may be made by practically all execu¬ 
tive and judicial officers of the county, including the 
county trustee. Comparative values of assessments 
for real estate and personal property appear in con¬ 
nection with the collection of general property taxes, 27 


27 See Collections. 


GENERAL PROPERTY TAXATION. 


47 


and a criticism of the system as a whole is reserved 
for a later chapter. 28 

Collections. 

Historical Development. The system of tax col¬ 
lection in use before 1870 was practically continued 
for a few years after the adoption of the constitution. 
That system was characterized by various tax col¬ 
lectors for each form of taxation, and consequently 
lacked unity and organization. The acts of 1875 29 
abolished the office of revenue collector, collector of 
railroad taxes and collector of corporation taxes and 
the office of collector of any other public revenues, and 
provided, in addition, that all taxes thereafter, whether 
state, county, or municipal, levied on property and 
polls, should be paid to the county trustee. It also 
provided that all privilege taxes were still to be col¬ 
lected by the clerk of the county court. 

Under this act all property and poll taxes became 
due and payable on the first Monday in June, and it 
was made the duty of the trustee on the first Monday 
of the third month next preceding, following the re¬ 
ceipt of the tax book, to make out and deliver to the 
constable of each district and ward (in some cases 
to the sheriff) a certified statement of the unpaid 
taxes due from such ward and district. The said state¬ 
ment was to have the force and effect of an execution 
from a court of record, etc. These officers were to 
collect delinquent taxes and pay over to the trustee, 
on or before the last day of the third month next 
ensuing, the receipt of the statements. The trustee, 

28 See Recent Reforms in Taxation. 

28 Ch. 91. 


48 


TAXATION IN TENNESSEE. 


by the act, was required to settle monthly with the 
Comptroller, the chairman of the county court, and 
the financial agent or treasurer of each municipality, 
and pay over the taxes respectively collected. 30 

The indefiniteness of the time for making the cer¬ 
tified statement by the trustee and the collection of 
delinquent taxes by the sheriffs, constables, etc., under 
the act soon became apparent to the legislators, and 
the date for delinquency was soon fixed as the first 
Monday in February following the receipt of the tax 
book, and further the date for making returns on col¬ 
lections by the sheriff, etc., was fixed at not later than 
the first day of May following the receipt of the 
statement. The act also fixed the time of collection 
of taxes to begin the first Monday in October. 31 

In the administration of the tax laws various loop 
holes appeared from time to time for the evasion 
of the payment of taxes, and many minor changes 
have occurred in the statutes to remedy the defects, 
especially during the seventies and eighties. However, 
fundamentally the changes adopted in acts of 1875 
were the provisions of the present laws dealing with 
the collection of the general property tax. 

A brief summary will reveal, roughly, the impor¬ 
tant provisions of the earlier laws: (1) The clerk 
was to make and deliver the tax-book into the hands 
of the trustee by October 1. (2) Municipalities of 

less than 8,000 inhabitants should assess and collect 
their taxes in the same manner as before the acts of 
1875,—that is, such municipalities operated under 

80 Lewis Tillman, in Daily American , February 26, 1881; 
also Acts 1875, ch. 91. 

Acts 1877, ch. 94. 


GENERAL PROPERTY TAXATION. 


49 


the old acts which provided for special tax collectors. 
(3) All taxes due October 1, became delinquent on 
the first day of September following, and the period 
from September 1 to November 1 was for collection 
of delinquents. But the taxes of cities of 8,000 inhabi¬ 
tants or over were due and payable at the same time 
as other taxes, but delinquent February 1, following. 
The purpose of this act was evidently for temporary 
relief of the rural districts by extending the time of 
collection, and was early repealed. (5) Upon returns 
made by the constable or sheriff November 1, the trus¬ 
tee was to advertise the land of delinquents for thirty 
days and sell January 1, following. (6) The trustee 
should report the sale of delinquencies to the next ses¬ 
sion of the circuit court. At the January term of the 
county court the trustee was to have the tax lists 
returned to him and he should present his list of 
inaccuracies and insolvencies for proper correction 
and credit. As was indicated in the beginning, to point 
out the minute changes in the collection laws of Ten¬ 
nessee since the adoption of the present constitution 
would require more space than a more pretentious 
volume than this would permit. And, too, such a 
detailed discussion could be profitable only to a student 
of law or taxation. So in order to facilitate the mat¬ 
ter, since we have succinctly set forth the plan in 
operation in 1875, only consideration will be given to 
a few points dealing with the collection of delinquent 
taxes, salary of trustees, the present system with its 
most important defects, etc. 

The nature of the machinery for the collection of 
delinquent taxes in the hands of the trustee 
and his aids-de-camp—constables, sheriffs, etc.—was 


50 


TAXATION IN TENNESSEE. 


explained in connection with early acts, and that part 
of the plan of tax collection has not materially changed. 
But the provisions for the collection of more remotely 
delinquent taxes have undergone constant revisions 
from time to time. We shall now note the nature of 
some of these provisions. 

Acts of 1875 32 provided that the quarterly court 
of each county and municipality respectively should 
appoint a tax collector to collect all taxes unaccounted 
for. He should receive 6 per cent commission, and 
proceed in the manner of the regular collector. Acts 
of 1879 authorized the Comptroller to employ an attor-. 
ney or attorneys who might go into any county in 
the state with full power to investigate tax records and 
force the collection of any taxes due the state. The 
act was to apply only to the collection of taxes then 
due the state, and likely was intended to whip into 
line certain dilatory collectors. 33 Before 1885 no spe¬ 
cial provision had been made for the collection of 
remotely delinquent taxes, except in the cases men¬ 
tioned above. Acts of 1885 34 provided that the trustee 
should deliver to the Attorney-General a complete 
statement of all dues of delinquent taxpayers. The 
Attorney-General was empowered to file bills in the 
chancery or circuit court in an effort to enforce col¬ 
lection. Acts of 1887 35 changed the plan by author¬ 
izing the Comptroller to appoint attorneys for the 
various counties of the state to perform the duty of 
delinquent tax collection. This attorney was paid by 

32 Ch. 103. 

33 Acts 1879, ch. 218. 

34 Assessment act 1885. 

35 Assessment act of 1887. 


GENERAL PROPERTY TAXATION. 


51 


the Comptroller subject to the approval of the Gov¬ 
ernor not to exceed 15 per cent of the taxes collected. 

Acts 1901 repealed part of acts 1895 36 relating 
to back tax attorneys and by acts of 1901 “such delin¬ 
quent taxes shall be collected by County Trustee.” 

The most important change occurring in relation 
to tax collectors was in the acts of 1897 37 which pro¬ 
vides for the appointment by the Comptroller of four 
state revenue agents. This in a way took the place of 
the Attorney-General as state tax collector under pre¬ 
vious acts. The duties of these agents were as fol¬ 
lows : They were empowered to investigate the books 
and records of all collectors of state and county taxes, 
and were authorized to make collections from such 
collectors when delinquent in making reports to the 
Comptroller. 

These agents were also authorized to examine 
merchants’ reports and investigate any claims of the 
state or county for revenue dues and bring suit for 
collection of same. In short, these officers could not 
only require correct and prompt reports from col¬ 
lectors, but they were also empowered to bring suit 
for the collection of individual delinquent taxes, in¬ 
cluding privilege taxes. 

In case of delinquent taxes due the Comptroller 
the revenue agent might assist in their collection, and 
10 per cent extra was added to such taxes collected 
to indemnify the state for the service performed by 
the revenue agent. 38 This additional 10 per cent was 
paid directly to the state and not to the revenue agent. 

Ch. 120. 

37 Ch. 1, sec. 88. 

38 See Corporation Taxation. 


52 


TAXATION IN TENNESSEE. 


The agent received not exceeding 15 per cent of all 
taxes collected, and was entitled to traveling expenses 
not exceeding $500. The latter was refunded if his 
total salary aggregated over $1,000. 

The acts of 1907, providing for state revenue offi¬ 
cers, 39 is not materially different from the previous 
acts. Under this act there are only three agents, one 
for each grand division of the state. It is not prac¬ 
ticable here to discuss in detail all the duties of these 
revenue agents. Their duties are practically the same 
under the present statutes as before, except that the 
suits for delinquent taxes are brought in the name of 
the county trustee or county clerk and the collection 
is made and reported by those county officers. 

By acts of 1907 the revenue agents receive 15 per 
cent of the amount collected or redeemed for the 
state which is used to indemnify the state for the 
use of the collector, provided that no revenue agent 
shall receive more than $2,500 per year. The remainder 
of the fees collected by him are paid over to the state 
treasury. Moreover, the agent is allowed to retain his 
expenses incurred in attending to official business. In 
case another attorney is employed by the state agent 
and approved by the Comptroller, such attorney shall 
receive his salary from the 15 per cent commission 
which would be due the state revenue agent. 

The office of state revenue agents has been very 
profitable to the state. For the biennial period of 
1907-1908 the total amount collected from delinquents 
by these officers was $212,760, and for 1917-1918, 

a® Ch. 602, sec. 77. 


GENERAL PROPERTY TAXATION. 


S3 


$242,579. When it is remembered that these large 
sums are collected from property which has not only 
evaded taxes, but which in many instances the owners 
have taken steps to hide, and, too, that the state is 
put to no expense in collection, it will be seen that 
the system of revenue agents has worked to the ad¬ 
vantage of the state and its honest taxpayers. 

Then, too, the revenue agents serve another pur¬ 
pose, other than merely collecting the delinquent taxes. 
The very fact that the revenue agents are authorized 
to proceed against those who evade their taxes, causes 
voluntary payment of many times the amount that 
is collected directly by the revenue agents themselves. 

The compensation of county trustees has been and 
is now practically the same as provided in acts of 1883, 
and not different in principle from those in the begin¬ 
ning. The act of 1907, the present law, 40 provides 
the trustee’s salary to be as follows: 6 per cent ol 
all moneys received by him up to $10,000 ; 4 per cent 
of all sums up to $20,000 and more than $10,000; and 
2 per cent on all sums above $20,000. It is provided 
further that the trustee shall receive 1 per cent com¬ 
mission on all funds collected from county officers 
on fees and on school fund received from the state, 
or on money turned over to him by the county clerk 
or other collecting officers, except money turned to 
him by his predecessor in office or on money borrowed 
for the use of the county or received from the pro¬ 
ceeds of bond sales. 

As was stated in the beginning, it is not practicable 
to give a minute discussion of the system of tax col¬ 
lection in Tennessee. Only the obscure points in the 

*> Ch. 602, sec. 72. 


54 


TAXATION IN TENNESSEE. 


system are here enumerated, together with a concise 
statement of the difficulties and defects existing under 
present practices. 

Present Plan of Collection. Just a brief paragraph 
will reveal the principal features of the plan of tax 
collections now in operation. Taxes are assessed on 
realty for state and county purposes as of January 10, 
and become due and payable the first Monday of 
October of the same year, except municipal taxes col¬ 
lected by cities having a population of 100,000 or over, 
and of those authorized to collect their own taxes. 
On March 1 they become delinquent and penalties 
accrue. On and after May 1 the trustee is authorized 
to advertise the property for sale, and, if the taxes 
be not paid, it is sold on the first Monday in June. If 
no bids are received for the property, the state under 
the law becomes the purchaser of it, for the taxes, 
interest, penalties, and costs. The trustee following 
such sale makes out a list in book form of all prop¬ 
erty sold to the state and the taxes and other charges 
due thereon, and certifies this list to the circuit court 
clerk. The net proceeds remain in the hands of the 
circuit court clerk for two years, during which period 
the persons to whom it was assessed may come in and 
redeem the property by paying the amount of the 
taxes for which it was sold to the state, with interest 
at 6 per cent per annum, and penalties of 1 per cent 
per month, together with all subsequent taxes, with 
interest, penalties, and costs. 

The Delinquent Tax Problem. The problem of 
delinquent tax collection has been and still is one of 
the most serious in the state. It is said that in the 
circuit court clerk’s office of Davidson county alone, 


GENERAL PROPERTY TAXATION. 


55 


there are records showing that there is now altogether 
about $60,000 of state and county taxes due on prop¬ 
erty in this county which has been sold to the state 
and which remains unredeemed, the value of the prop¬ 
erty being conservatively estimated at not less than 
$600,000. 

A quotation from an interview with one of Ten¬ 
nessee’s leading lawyers, who is an expert in taxation 
and a practical authority upon tax problems in Ten¬ 
nessee, will reveal the weakness of the system of tax 
collection in the state. The quotation follows: 

“Heretofore, the state having title to prop¬ 
erty at tax sales and the property not having 
been redeemed within the prescribed period, 
the revenue agents or back tax attorneys have 
attempted to collect these delinquent taxes by 
filing suits in the chancery court seeking to 
sell the property again for the taxes and other 
charges against it. But as no one is willing to 
buy a tax title the chancery court proceedings 
have usually resulted in nothing but additional 
costs. 

“Our theory is that when this property is 
sold to the state and the two years for redemp¬ 
tion has expired the property belongs to the 
state and the Comptroller has the right through 
the revenue agent to obtain a decree from the 
circuit court confirming the title of the state 
and to obtain a writ of possession putting the 
Comptroller in actual possession of the prop¬ 
erty by the service of notice on the tenants, 
if it be rental property, and on the owner if he 


TAXATION IN TENNESSEE. 


occupies it himself. In either case the Comp¬ 
troller would be entitled to collect the rents, 
the former owner, if he occupy the property, 
becoming the tenant of the state. 

“This procedure is expressly provided for 
in the assessment act of 1907, but so far as I 
know no attempt has ever been made to put it 
into effect. We have recently filed a petition in 
the circuit court asking that the state’s title to 
certain property in Nashville be confirmed and 
that a writ of possession issue putting the 
Comptroller in actual possession of the property. 
We filed this against a man who has had a great 
deal of experience in revenue matters because he 
could resist this effort without incurring any 
attorney’s fees and because we hoped that he 
would make a thorough test case of it. We fur¬ 
nished him a copy of our petition and he, after 
looking over it, concurred with our interpreta¬ 
tion of the law and refused to fight the case. He 
agreed with us that this procedure had never 
been tried out in this state, but that it was 
clearly authorized by the statutes and stated 
that he was not willing to pay the costs to fur¬ 
nish us with a test case. 

“Most of these delinquents pay absolutely 
no attention to notices sent them by the reve¬ 
nue agent, who maintains an office on the fourth 
floor of the court house in charge of Walter 
Johnson, who has personally notified most, if 
not all, of the delinquents that such proceedings 
would be instituted against them. 


GENERAL PROPERTY TAXATION. 


57 


“I have no way of estimating the amount of 
taxes due on property in Tennessee which has 
been sold to the state and the time for the re¬ 
demption of which has expired, but it is very 
large. 

“Other states have enforced their titles to 
such property and the supreme courts have sus¬ 
tained the validity of the laws to such an extent 
that in some of them with which I am more or 
less familiar, a deed from the state for property 
acquired by it under these laws is considered to 
pass as good a title as an original grant from the 
state, and I can see no reason why Tennessee 
should not adopt the same procedure.” 41 

The case is virtually this: where real estate is sold 
for taxes to individuals by the county trustee, the 
purchaser receives a deed from the circuit court after 
two years from the sale of the property. This deed 
entitles the purchaser to possession of the property 
and in a certain sense to a deed also. But the title 
of such property is subject to legal attack for a num¬ 
ber of years. That is to say, the laws of Tennessee 
are not sufficiently specific upon the subject, and the 
question of land titles in the state is so complicated 
that uneasiness prevails in connection with such titles; 
therefore the sale of property for taxes has proven 
unsatisfactory, as was shown fully by the quotation 
above. In fact, it has been said by a state revenue 
agent that if a man so desires he may refuse to pay 
his tax and it could not under the present laws be 
collected. 

41 Interview with Hon. Miles P. O’Connor. 


58 


TAXATION IN TENNESSEE. 


A bill has been drawn and will be presented to the 
present administration, which is designed to remedy 
the situation with regard to delinquent taxes in the 
state. It is here outlined as follows: (1) That the 
State Treasurer be empowered to compromise and 
settle disputed questions of title between the state and 
other claimants of real estate; (2) that in the settle¬ 
ment of the state’s title to property, sold by the state 
and unredeemed for two years, adjustment shall be 
made of all taxes due from such property; (3) that 
the Treasurer is authorized to file suit in the circuit 
court to adjust such claims, the defendant to be re¬ 
quired to appear in court and show why the state 
should not be put into possession of the premises; 
(4) that if the adverse claimant fail to appear and 
show cause, the court shall proceed to establish the 
state’s right of possession. 42 

A Comparison of Personalty and Realty Assess¬ 
ment. It is conceded that the value of personal prop¬ 
erty in the state is nearly, if not quite, equal to that 
of realty, yet the assessed value of personalty is in 
many cases only a small percentage of the assessed 
value of the real estate. While it is true that under 
the constitution much personalty is exempt from taxa¬ 
tion, yet it is well known that the greater amount of 
personalty in Tennessee constantly escapes taxation. 
A comparison of the assessment value of these two 
forms of property will make apparent this condition. 

42 Bill drawn by Miles P. O’Connor. 


GENERAL PROPERTY TAXATION. 


59 


TABLE I. 

Comparison of Realty and Personalty. 


Percent 


Year 

Realty 

Personalty 

Rate 

age 

1873 

$261,765,493 

$45,514,245 

40c 

17.0 

1880 

195,635,635 

16,133,338 

10 c 

8.2 

1890 

292,870,813 

54,637,292 

30c 

18.6 

1900 

291,865,370 

48,493,768 

35c 

16.6 

1910 

421,404,591 

78,297,887 

35c 

18.5 

1917 

490,609,921 

96,516,183 

50c 

19.6 


The table above includes the value of assessments 
of realty and personalty, except such as is assessed 
by the railroad commission. The table itself is self- 
explanatory. 

The Comptroller’s Report of 1899-1900 also 
shows the comparison of realty and personalty assess¬ 
ments for all the southern states in 1899. 


TABLE II. 

Comparison With Other States . 43 





Ratio to 

States 

Realty 

Personalty 

whole 

Alabama. 

...$111,895,960 

$ 99,955,475 

47.18 

Arkansas . 

... 109,764,933 

56,638,746 

34.63 

Florida. 

... 59,177,137 

15,338,355 

20.58 

Georgia. 

... 235,410,751 

137,516,326 

36.87 

Kentucky. 

... 447,681,753 

115,646,933 

20.53 

Louisiana. 

... 195,483,713 

92,936,160 

32.22 

Mississippi . - 

... 113,210,931 

48,258,651 

29.90 

Missouri. 

... 749,131,032 

210,165,875 

22.01 

North Carolina . 

... 156,609,650 

78,343,719 

33.34 

South Carolina . 

... 101,109,469 

48,655,933 

32.49 

Tennessee. 

... 271,021,726 

37,693,230 

12.21 

Texas . 

... 587,216,258 

263,652,648 

30.98 

Virginia. 

... 311,584,460 

115,555,754 

27.05 

West Virginia .. 

... 149,898,172 

56,148,736 

27.25 


Table II includes all realty and personalty assess¬ 
ments, except railroad property. 

43 Comptroller’s Report 1899-1900. 














60 TAXATION IN TENNESSEE. 

TABLE III. 


Comparison In 1917. 

Per 

State Realty Personalty Rate Capita 

Indiana.$1,284,839,764 $775,580,454 40c $2.94 

Missouri . 1,318,179,918 383,757,605 18c 1.00 

Virginia. 696,729,871 278,798,294 25c 1.41 

N. Carolina . 479,075,292 346,394,592 20c 1.02 

S. Carolina . 164,111,531 101,625,394 60c 1.25 

Georgia. 525,417,644 277,070,618 50c 1.67 

Kentucky. 713,835,438 208,621,043 55c 2.71 

Tennessee. 483,597,610 82,066,334 35c 1.04 

Alabama. 432,208,484 233,528,938 65c 2.28 

Mississippi. 256,265,231 104,370,761 60c 1.32 

Arkansas. 328,062,572 133,780,458 73c 1.95 


It will be noted from the Tables II and III above 
that Tennessee has the lowest comparative ratio of 
personalty assessment to the total value. Therefore 
one of two things is evident—either the state has 
fallen behind the other southern states in progress, or 
her citizens have been hiding or concealing personal 
property from the tax assessor. The latter is more 
likely the case. 44 

With the exception of the taxes of certain cities 
and the state tax assessed against railroad, telegraph, 
and telephone companies, all ad valorem taxes are 
collected by the county trustee. 

The table below will show comparative receipts 
derived from the general property tax for representa¬ 
tive years since 1880. Corresponding rates are also 
given in order to show their effect upon the total re¬ 
ceipts for those years. 


44 See Special Tax Com. Report. 











GENERAL PROPERTY TAXATION. 


61 


TABLE IV. 

Comparative Receipts of General Property Tax. 


Year 

Rate 

Receipts 

1880 

10 c 

$ 211,768.33 

1890 

30c 

870,229.01 

1900 

35c 

1,035,950.23 

1910 

35c 

1,557,460.73 

1918 

50c 

1,913,983.64 

Receipts for 1873 

were 

not easily available, and 


the low figures for the receipts of 1880 may be largely 
accounted for by the low tax rate of 10 cents for that 
year. The receipts are shown to be steadily increasing, 
but probably not in proportion to the increase in the 
wealth of the state. The facts in the case are not 
easily known. 45 

45 The figures above are taken from the various Comp¬ 
trollers’ reports. 


CHAPTER III. 

THE TAXATION OF CORPORATIONS. 

Railroad Taxation. 

The history of the development of railroad taxa¬ 
tion in Tennessee since 1870 falls naturally into three 
periods—the period during which they were taxed 
only as privileges, from 1870 to 1875; the period dur¬ 
ing which the state was establishing its authority to 
tax such corporations, under State Tax Assessors, 
1875-1897; and the period of successful ad valorem 
taxation, under the Railroad Commission, which dates 
from 1897 to the present time. There was fierce and 
lengthy struggle between the railroads and the state 
over the right of taxation by the state. The roads 
contested every inch of the ground, for many of their 
charters gave specific exemption; but the result was 
a final and complete victory for the state; how com¬ 
plete, a comparison of the receipts before and after 
the year 1900 will show. 

The taxation of railroads was in the process of 
evolution at the time the Constitution of 1870 was 
adopted, and a period of a few years was required 
before the state got its bearing in dealing with this 
difficult and somewhat delicate question. Upon the 
subject the constitution was silent save for the pro¬ 
visions that all property shall be taxed equally and 
that the Legislature may provide for the collection of 
privileges. 1 Such corporations under the “internal 
improvement” program had been practically exempt 
from taxation in previous years. 

1 Art. II, sec. 28. 


THE TAXATION OF CORPORATIONS. 


63 


In 1871 a law was enacted which provided that 
each railway company, and other incorporated com¬ 
panies, except those incorporated for charitable, re¬ 
ligious, and like purposes, should be taxed six mills 
on the dollar of all net earnings. 2 Later the same year 
the rate was changed to four mills on gross receipts. 3 
This was ineffective from the standpoint of revenue 
for two reasons—one, that the earnings accruing to 
the railroads during the reconstruction period were 
slight, because all business was demoralized; and the 
other, that practically all collection of taxes involved 
long drawn out litigation. The latter was due to the 
cause mentioned before; namely, that the railroads 
had not yet been convinced that they should be taxed 
on realty. Thus, prior to the acts of 1875, railroad 
properties in Tennessee virtually escaped taxation be¬ 
cause this class of property could not be reached under 
the general assessment laws, no special legislation hav¬ 
ing been enacted for the assessment of such property. 

The urgent demand the state had for revenue to 
meet the growing expenses of government and to pay 
off the large accumulated debt caused Governor Porter 
in 1875 to urge strongly the taxation of railroads and 
other corporations that remained practically untaxed. 
The Assembly responded by the passage of a very 
important act dealing with the taxation of railroads. 
It provided a method of taxation similar in outline 
to the one in present use, but crude in many of its 
details. The physical value was to be the basis of 
taxation, but one of its provisions exempted all rail¬ 
road companies from further taxation for ten years 

2 Acts 1871, ch. 51, sec. 5. 

3 Acts 1871, ch. 10, sec 8. 


64 


TAXATION IN TENNESSEE. 


which agreed to pay one and one-half per cent of gross 
earnings annually directly to the State Treasurer. 4 
(Note—The test of the power of the state to tax 
railroads began with the famous Sumner County 
case.) 5 

This act was significant for two reasons: first, that 
it showed the crystallization of public opinion upon 
the issue that railroads should be taxed upon physical 
value the same as other corporations; and secondly, 
that the 1^ per cent exemption privilege was a 
compromise to the railway companies. In this con¬ 
nection the Nashville Union and American expressed 
well the public thought of the time: “By a mode 
of assessing railroads acceptable to the companies 
themselves, it has avoided litigation and secured an 
annual increase in revenue amounting to $150,000 or 
more, as the business of the country revives.” 6 How¬ 
ever, the compromise clause of 1% P er cent t ax on 
gross earnings was held unconstitutional upon the 
ground that all property should be taxed equally ac¬ 
cording to value. At the same time, however, the 
Supreme Court held the law valid which provided 
that railroads are taxable as other realty. That is, 
they were held taxable upon the double ground that 
bonds issued for the railroads against the county are 
assessable, and the basis upon which the property was 
assessed was a proper one. 7 The basis of assessment 
here referred to was by the process of estimating the 

^ Acts 1875, ch. 78. 

5 See Court Reports, 1876. 

6 Nashville Union and American, April 1, 1875. 

7 The Union and American, March 4, 1875; L. & N. vs. 
State, 8 Heiskell, 663. 


THE TAXATION OF CORPORATIONS. 


65 


value of the whole road, in the state and out of it, 
including rolling stock, equipment and buildings, and 
then taking the average value per mile. The same 
opinion also decided that the railroads are not included 
in that class of corporations which was exempted from 
taxation of the capital stock, such as banks and joint 
stock companies that are assessed by levying the tax 
on the stockholders. 8 Still, many felt that it was 
necessary to proceed with caution in attempting to tax 
railroads, in order to form a law that would prevent 
litigation and thereby secure a large revenue at an 
early date, which was sorely needed at the time. How¬ 
ever, the Legislature met the issue squarely, and passed 
an act in 1877 which removed the unconstitutional 
feature of the previous law. 9 

The act of 1877 was significant in other respects. 
In the act of 1875, providing for the method of taxing 
railroads, was a provision for a temporary board of 
tax assessors, consisting of three members, which 
should act in assessing railroad property when such 
companies failed to make the necessary report to the 
Comptroller. The new law provided for this board 
to become a permanent Board of State Tax Assessors 
and to hold office for a term of two years. This was 
a step in the right direction, which ultimately resulted 
in the assessment of railroad property for taxation by 
a Railroad Commission. Some concessions were made 
to the railroads by the act, because all saw the im¬ 
portance of not antagonizing these companies. They 
were allowed exemption on $1000 worth of personalty; 
any excess of taxes paid by the roads under the opera- 

8 Acts 1873, ch. 118, sec 8. 

^ Acts 1877, ch. 9. 


66 


TAXATION IN TENNESSEE. 


tion of the preceding law was to be refunded; all roads 
which would pay their taxes from the year 1875 
should be exempt from municipal taxation for the two 
years preceding; and under the law incorporated towns 
could tax railroad companies only as directed by the 
state. The difference of policy toward railroads, 
shown by these concessions, is made plain by compari¬ 
son with the present policy toward such corporations. 

Too much importance can scarcely be attached to 
this general railroad assessment law, although imper¬ 
fect in many of its details. Its final interpretation by 
the courts practically closed the question as to whether 
or not railroads could be taxed upon realty, and the 
act set in motion the assessment machinery whereby 
railroads have been assessed for taxation since that 
time. Since the passage of that law assessment acts 
have grown more mandatory on the part of the state 
in the method of assessment and collection of taxes, 
and consequently more obligatory on the part of the 
railroads, and thenceforward the revenue from these 
companies has become a substantial part of the state’s 
income. 

The next important period of legislation for the 
taxation of railroads was from 1881 to 1883. Several 
cases were still pending involving the collection of 
taxes under the act of 1877, but public sentiment had 
turned largely in favor of the method adopted by the 
state. So the preceding acts were amended and 
thereby strengthened. The act of 1881 dealt primarily 
with the nature of schedules, reports, etc., required 
of the railway companies. This act the railroads 
strongly resented. They had ceased to object to the 
principle of taxation, but refused to furnish the evi- 


THE TAXATION OF CORPORATIONS. 


67 


dence whereby such assessment could equitably be 
made. Again the state was obliged to coerce the roads 
in inducing them to furnish the necessary information 
for the accurate assessment of their property. A pen¬ 
alty was imposed upon companies failing to make the 
required reports to the Railroad Tax Assessors, 10 
and in 1882 an act was passed defining the method of 
procedure in making assessment. Railway property 
was classified as “distributable and localized.” That is, 
the State Tax Assessors assessed the distributable 
property, which consisted of track, right of way, ties, 
rolling stock, bonds, etc. Localized property, which 
consisted of depots, yards, and other property having 
a local situs, was assessed by local tax assessors. The 
local assessors were required to make reports of such 
assessments to the Comptroller of the Treasury. This 
strikes one as peculiarly crude in comparison with the 
present method of assessment of localized property, 
being directly opposite in character. 11 

The act of 1895, referred to above, provided that 
assessment of localized property should be made by 
the State Tax Assessors, and then reported to the local 
assessors. The inefficiency of the method provided 
for in 1882 12 may easily be imagined when it is remem¬ 
bered that local assessors were appointed for each civil 
district and ward of the county, who served only a 
few days each year. Besides, these assessors had no 
means at hand upon which to base an estimate of 
value except by consideration of the actual physical 
property in sight. It is quite evident in the operation 

10 Acts 1881, ch. 104, sec. 3. 

11 Acts 1896 and 1897. 

12 Acts 1882, ch. 16. 


68 


TAXATION IN TENNESSEE. 


of such a plan that the railroads were at a disadvant¬ 
age, because of unfair appraisements. 

The act provided for the exemption of $1,000 
worth of personalty, in defining the method of pro¬ 
cedure in making the assessment, but individual shares 
of stock were not to be deducted. “But a company 
is not entitled to an exemption upon each road pur¬ 
chased or leased, or upon its different branches. The 
owner of different railroads is no more entitled to 
double exemption than is the owner of several 
farms/’ 13 The $1,000 exemption of personalty which 
was carrying out the constitutional requirement, indi¬ 
cated the growing sentiment in favor of double taxa¬ 
tion of corporations, which soon became a prominent 
issue between the state and its business interests. 14 
In 1883 the railroad commission was created, which, 
although it only provided for reforms other than taxa¬ 
tion, was another step toward the final Railroad Com¬ 
mission Act of 1897. 

Directly following the legislative reforms above 
mentioned, the railroads, with only a few exceptions, 
yielded to the mandate of authority and the voice of 
public opinion manifest in the laws, and made settle¬ 
ments of back taxes. The Louisville & Nashville 
Railway Company settled for delinquent taxes back to 
1875, the receipts from which amounted to $76,000. 
The more important exceptions referred to above were 
the N. C. & St. L.. and Mobile & Ohio companies, 
whose charters made it possible for them to hold out 
much longer, pending certain decisions of the court. 15 

13 Louisville, etc., Ry. Co. vs. Bate, 2 Lea, 573. 

14 See corporations. 

15 Comptroller’s Report, 1885. 


THE TAXATION OF CORPORATIONS. 


69 


In 1889 and 1893 the Legislature sought to offset 
the attempt of some roads to avoid taxation by pro¬ 
viding for a special privilege tax upon railroads not 
paying ad valorem . Roads of 400 miles or more 
within the state were assessed at $10,000. For those 
of less than that number of miles the rate was cor¬ 
respondingly reduced. 16 This rate continued until 
1897 when it was raised about 50 per cent. From this 
source there was considerable income to the state. 

In 1892 the Comptroller of the Treasury reported 
that “the railroads of the state, except the Knoxville 
& Ohio, and Mobile & Ohio, had paid the taxes 
assessed against them.” The case of Mobile & Ohio 
was finally lost to the state in the Supreme Court of 
the United States, by the narrow margin of 5 to 4. 
The same company, however, was promptly sued for 
privilege taxes covering the six years preceding 1895, 
and the suit virtually resulted in a victory for the 
state, in that the company compromised and paid the 
greater part of the tax and cost. The Knoxville & 
Ohio paid under protest and sued to recover the taxes. 
The taxes were never recovered, and the most stub¬ 
born of the corporations was forced to yield to the 
state’s authority in taxation. 

Emphasis has here been given to the details of the 
struggle between certain corporations and the state, 
the result of which ultimately established the state’s 
power to tax in such manner and by such methods as 
the nature of the case demands. 

The first period of railroad taxation, as set out 
in the beginning, had its close in the beginning of the 
taxation of realty to these companies. The second 

16 Acts 1889, ch. 89. 


70 


TAXATION IN TENNESSEE. 


period ended when the state had fully put into opera¬ 
tion that form of taxation. In the third period the 
roads shifted ground in their struggle against state 
regulation. They no longer resisted the payment of 
privileges or ad valorem taxes, except upon technical 
grounds, but offered resistance to rate regulation, 
which topic, however, has no place in this discussion. 

While the acts of 1895 provided for a state board 
of tax assessors, appointed by the Governor, and also 
a board of examiners, consisting of the Governor, 
Secretary of State, and Treasurer, whose duty it was 
to pass upon assessments made by the State Tax As¬ 
sessors, yet the provisions and precedents were of 
such a nature as to cause misunderstandings and liti¬ 
gation, not only between the state and the railroad 
companies, but between the Governor and the State 
Tax Assessors. The details of these controversies are 
too complicated for further discussion in this brief 
history, but it should be said here that one of the 
results was the transfer of all assessment duties to 
the Railroad Commission in 1897. 17 

Under the act of 1895 the assessment of localized 
property was made the duty of the State Tax Asses¬ 
sors, instead of its being left in the hands of local 
assessors. The importance of this provision is mani¬ 
fest, as referred to in another connection. The state 
has many local districts, each with its own and sep¬ 
arate assessor, and it is impossible for these local 
assessors to collect the necessary evidence and infor¬ 
mation in arriving at the value of property which is 
only a part of a great system. Another feature of the 
act was that the State Tax Assessors were to be ap- 

17 See acts of 1897. 


THE TAXATION OF CORPORATIONS. 71 

pointed by the Secretary of State, Comptroller of the 
Treasury, and the Treasurer. This act formed the 
basis of the present system of dealing with railroad, 
telegraph, and telephone companies. The exception 
in the law, however, was that localized property of 
telegraph and telephone companies was left to the 
local assessor for assessment. It will be recalled that 
this was provided for in the act of 1881, applying 
only to railroads. 

An interesting and very important feature of the 
new method of taxation was that the counties and 
municipalities were at no expense whatever in assess¬ 
ing and collecting taxes on properties of railroad, tele¬ 
graph, and telephone companies, except in the amount 
of commissions paid collecting officers. The same 
valuation fixed by the Board for state taxes are certi¬ 
fied by the Comptroller to each county and municipal¬ 
ity, and upon this certified assessment the roads pay 
each year to the county and municipal officers their 
taxes. 18 It seems in this act, that the Legislature 
endeavored to provide sufficient and adequate means 
of assessment of railroad properties, and to compel the 
companies to bear a just proportion of the burden of 
taxation. The basis of assessment under the act in¬ 
volves consideration of the capital stock, corporate 
property, gross receipts, value of shares of stock, and 
bonded debt and franchises of each company. 

The special revenue act of 1895 re-incorporated 
the privilege tax of the preceding years, and added 
thereto the provision that the counties through which 
railroads run may collect $500 privilege tax annually 
from each road within its limits, and every incor- 

18 Comptroller’s Report, 1899-1900. 


72 


TAXATION IN TENNESSEE. 


porated town, $250. This levy was to be paid directly 
to the Comptroller, and the law only operated in case 
the road was exempt from ad valorem taxes. In 1897 
the special revenue act raised the rate of the privilege 
tax of railroads exempt from ad valorem tax, by about 
50 per cent, thereby making the new rate $15,000 for 
all roads having 400 miles or over. The court held 
this to be a tax on occupation of running such a road, 
and not an ad valorem tax. 19 

In the general railroad assessment act of 1897 the 
duty of assessment was transferred from the State 
Tax Assessors to the Railroad Commission, where 
it now rests, but the duty of equalizing devolved upon 
the Governor, Secretary of State, and Treasurer, con¬ 
stituting a State Board of Equalization for railroad, 
telegraph, and telephone properties. The Commission 
made its first general assessment for the years 1897-98 
upon such properties, which amounted to about 
$72,000,000. This was a large increase over any pre¬ 
vious assessment. 

About this time the railroads shifted ground in the 
struggle against taxation. They no longer questioned 
the right of the state to tax ad valorem, but contended 
that the railroad property was assessed at a value 
higher than property assessed by other assessors of 
the state, and hence that the State Tax Assessors 
violated the mandate of the constitution which pro¬ 
vided that all property should be assessed according to 
its value and that no specie of property should be 
taxed higher than another. Many suits followed, but 
the roads were forced to pay the taxes first and then 
file suit for their recovery. Before the assessment of 

is 15 Pick., 578. 


THE TAXATION OF CORPORATIONS. 


73 


1899-1900 was certified to the Comptroller, an agree¬ 
ment was entered into by the state and all the railroad, 
telegraph, and telephone companies who had brought 
suit enjoining the state officials from the collection of 
taxes under the assessment of 1897-98. The agree¬ 
ment was that as soon as the assessment made by the 
assessors for 1899-1900 was certified by the Board of 
Equalization, if without change of values, that the 
railroad, telegraph, and telephone companies would 
dismiss their suits then pending, and pay the taxes 
of 1897-98 upon the figures made by that Board, and 
also pay all costs of litigation. And by virtue of this 
compromise these corporations paid to Tennessee for 
the years 1897-1900, inclusive, their taxes, which 
amounted to $749,007.90. 

The above statement would indicate that the resist¬ 
ance of the railroad and like corporations against the 
state’s right of taxation had practically ceased. At 
least, future litigations were destined, so far as they 
concerned property taxation, to be based on other 
issues than the right of general property taxation. The 
Comptrollers’ reports after 1900 show “that all rail¬ 
roads paid promptly.” 

The last assessment made by the State Tax As¬ 
sessors, prior to the creation of the Railroad Commis¬ 
sion as Railroad Tax Assessors, amounted to $40,- 
446,368. On the same properties in 1903-1904 the 
assessment totaled $60,712,456 of value. Assuming 
the rate to be the same for the two periods, the dif¬ 
ference of taxes due amounted to $283,725 per year. 
This alone speaks for the efficiency of the assessment 
of property by the Railroad Commission over that of 
the State Tax Assessors. The Railroad Commission 


74 


TAXATION IN TENNESSEE. 


is better equipped to do this work in a more thorough 
and systematic manner than was the temporary board 
of assessors appointed by the Governor. As a result 
of this efficiency of the Commission such corporations 
bear a larger share of the burden of taxation in Ten¬ 
nessee than they do in neighboring states. 

In 1899 a new rate of taxing railroads upon privi¬ 
leges was fixed, which was to the effect that each 
road, exempt from ad valorem taxes, should pay $120 
per mile. Any road, however, was exempt from pay¬ 
ing this rate by obligating itself to pay to the Comp¬ 
troller, in lieu of other taxes, $4,500 annually for ten 
years. The same permissive clause has been re-enacted 
successively since 1899. Two roads in the state, Mobile 
& Ohio, and Knoxville & Augusta branch of the 
Southern Railway, accepted this option and the assess¬ 
ment of their property is not included in the general 
assessment of railroad property. 20 However, the last 
of these roads came under the jurisdiction of the Rail¬ 
road Commission in 1910. 

Short line roads, located entirely in a single county 
and used exclusively by a company as a part of its 
plant, are not assessable by the State Board of As¬ 
sessors. 21 Another form of railway property, which 
presents a problem peculiar to itself, is the itinerant 
railway car used for renting purposes and owned by 
persons, firms, etc., having their residence outside the 
state. Such cars are assessed by the Railroad Com¬ 
mission. Railroad officials are required by law to 
make a report upon cars thus used, with the names 
of the owners. The assessment is certified to in much 

20 Comptroller Report, 1905-06. 

15 Pick, 578. 


THE TAXATION OF CORPORATIONS. 


75 


the same manner as other railway property. 22 How¬ 
ever, the problem arises in the fact that the railroads, 
who have no special interest in these cars, refuse to 
make careful and accurate reports upon them. They 
refuse upon the ground that it is too much expense 
to trace up and make a record of such cars and com¬ 
panies. It has been recommended from time to time 
that these companies who own such cars be required 
to make a similar report to the Railroad Commission 
as those required of railroad, telegraph, and telephone 
companies. The Comptroller, in his biennial report 
of 1905-06, recommended that these itinerant cars be 
assessed upon a privilege basis. It is quite obvious, 
however, that a privilege tax would result in inequality 
in case the companies possessed a different number of 
cars. It is clear that the number of cars reported 
would constitute the basis of estimating the amount 
of privilege enjoyed. Therefore some kind of 
enumeration of these cars would still be required, 
which would render the plan recommended by the 
Comptroller equally as ineffective as the one in present 
use. 23 

Another form of railway property has a place in 
the discussion of railroad taxation, namely, interurban 
and street railways. This is true for two reasons: 
one, that this duty was given to the Railroad Com¬ 
mission, and the other that the assessment of such 
properties has become so complicated that expert 
methods are necessary to secure a just appraisement. 
The acts of 1905 provided 24 that the State Tax Asses- 

22 Acts 1901, ch. 48. 

23 See Recent Reforms in Taxation. 

24 Ch. 513. 


76 


TAXATION IN TENNESSEE. 


sors should assess the property of interurban and 
street railroads. The act continues in force, having 
been upheld by the court, and doubtless the plan is for 
the best interest of the public. 

Besides being required to assess the property of 
railroad, telegraph, telephone, street railway and inter¬ 
urban companies, including electric light and power 
companies where operated in conjunction with street 
railway and interurban companies, including electric 
light and power companies where operated in con¬ 
junction with street railroads, the Legislature of 1915 
passed an act giving the Railroad Commission author¬ 
ity to assess the properties of all hydro-electric power 
companies in the state. 25 In 1917 a similar law was 
enacted conferring the same duties upon the Commis¬ 
sion with reference to gas companies in cities between 
85,000 and 92,000 inhabitants and from 145,000 to 
155,000 people. 26 The constitutionality of the last act 
is now pending, but the suit will probably be with¬ 
drawn since the passage of the assessments acts of 
1919. 27 A test of the latter act would test the former, 
because the former likely is repealed by implication, 
besides being also included by the latter. 

This brief outline of the development of railway 
taxation and the taxation of other quasi-public cor¬ 
porations assessed by the Railroad Commission is 
made more complete by a summary of the method and 
practices of the Commission in making assessments 
at the present time. Information necessary to deter¬ 
mine the value of the properties is gathered by means 

25 Acts 1915, ch. 1. 

26 Acts 1917, ch. 624. 

27 See Recent Reforms in Taxation. 


THE TAXATION OF CORPORATIONS. 


77 


of schedules sent out by the Comptroller, and an¬ 
swers to interrogatories prepared by the Commission. 
The president and general manager, in each instance, 
make sworn answers to the interrogatories and a 
sworn report on the regular schedules furnished by 
the Commission. The Commission looks to these 
reports and compares them with the annual reports 
to the stockholders and with the statistics obtained 
from Poor’s Manual. In addition to this, information 
is sought from every source as to the value and the 
earning capacities of the properties assessed. In 
valuing localized property in the larger towns and 
cities the Commission calls on the mayor of the city 
and the judge of the county court to name a com¬ 
petent person to inspect the property and give sworn 
testimony as to its value. The Commission cannot 
possibly know the value of real estate and localized 
property in the various towns and cities of the state, 
and as the county and city are interested in the reve¬ 
nues, it has been deemed proper to secure proofs of 
the value of localized property in the manner above 
mentioned. In arriving at the value in the small towns 
and the country, a copy of the list of localized prop¬ 
erty is made out from the schedules, with the valu¬ 
ation placed upon it by the railroad company, and 
sent to the county judge or chairman of the county 
court, with the request that he value the property and 
report same to the Commission. It is presumed that 
he, being the financial agent of the county, will make 
a fair and equitable assessment of the localized prop¬ 
erty of the railroad company. 28 These taxes become 

28 R. R. Commission Report, 1917-18. 


78 


TAXATION IN TENNESSEE. 


due at the usual time and payable directly to the 
Comptroller of the Treasury the same as other taxes. 

The average receipts for the biennial periods from 
railroad ad valorem taxes during the ten-year period 
from 1887-96, inclusive, was $206,087, or practically 
the same as the receipts for the first biennial period 
of the decade. That is to say, the revenue from this 
source had not increased over this prosperous period 
as some other forms had done. The privilege tax 
receipts for the same time amounted to an average of 
$2,000 per biennial period. This makes no considera¬ 
tion of the compromise settlements with the M. & O. 
in 1896 of $37,000, which was also a privilege tax, 
but which was levied to reach the realty value of that 
road. During the next decade, which was the first 
ten years assessment by the Railroad Commission, 
the average receipts from railroads amounted to 
$366,000, or over 77 per cent increase over the pre¬ 
ceding ten years. However, it is to be remembered 
in making comparisons that the valuation of these 
properties after 1897 included a considerable increase 
because of telegraph and telephone assessments. Then, 
too, a certain amount of the increase was due to col¬ 
lection of delinquent taxes. For the same decade the 
privilege taxes collected from railroads amounted to 
only $9,900 for the whole time, which shows that at 
that time the collection of privilege taxes from 
these companies had been practically abandoned. 
Finally, as pointed out in another connection, 
the ad valorem receipts from railroads have 
steadily increased until in 1917-18 the grand total 
of revenue from this source was $792,142, or over 
6 per cent of the total revenue received during that 


THE TAXATION OF CORPORATIONS. 


79 


period, and second only, as a class of taxes, to the 
revenue derived from insurance companies. 

Telegraph and Telephone. 

Telegraph. Telegraph companies, like railroad and 
other corporations, were taxed only upon a privilege 
basis during the greater part of the seventies. In 1871 
the privilege tax was four mills a year upon gross 
receipts. 29 This had been changed previously the 
same year from six mills on net earnings. 30 The 
telegraphs, like the railroads, were unproductive as a 
source of revenue. The war had left these companies 
competely depleted of resources. 

In 1877 the first law providing for the assessment 
of telegraph properties was enacted. To this date 
this class of property had only paid privilege taxes. 
The courts previously, in interpreting the act of 1875 
relative to the taxation of railroad property, held that 
telegraph lines are considered as partaking of the 
nature of realty, in analogy to the new doctrine that 
railroads and rolling stock are so treated; hence, such 
property is liable to state and county taxes, regardless 
of the fact that they also pay a privilege tax. 31 

The nature of the plan for such taxation was prac¬ 
tically the same as that for railroads, and therefore 
needs no further elucidation. 32 In 1895 the general 
assessment act 33 provided for the assessment of both 
distributable and localized telegraph properties by the 

29 Acts 1871, ch. 101. 

30 3rd session 1871, ch. 51. 

31 Western Union vs. State, 9 Baxter. 

32 See Acts; See Railroad Taxation. 

33 Secs. 61-62. 


80 


TAXATION IN TENNESSEE. 


State Tax Collector and in the same manner as for 
railroad property. The act of 1897 provided for the 
assessment of railroad, telegraph, and telephone prop¬ 
erties by the Railroad Commission, and since that date 
both telegraph and telephone companies have been 
assessed in the same manner and by the same authority 
as the railroad companies, 34 excepting, however, that 
telegraph and telephone properties considered as local¬ 
ized were left to local assessors. This act had no 
classification as to telegraph and telephones, but the 
Railroad Commission placed the same construction 
upon the act as upon railroad property, wires, poles, 
instruments, batteries, rights of way, franchises, etc., 
being regarded as distributable. As in the case of 
the railroads, the act of 1897 practically solved the 
problem of taxation of telegraph companies. 

In 1881 the privilege rate for telegraph companies 
was $5 for each office maintained. In 1889 the rate 
was $3,000 for 300 miles or more; 1895, $5,000 for 
1,000 miles or over; in 1899, $700 for lines 300 to 
1,000 miles; thus it is seen that the rates were gradu¬ 
ally reduced. The latter rate has been retained to 
the present. 35 

The income from the taxation of telegraph prop¬ 
erty, for the decade of 1887 to 1896 showed an average 
of only $2,245 every two years. The next decade 
(as in the case of railroads) showed an increase, the 
average receipts for that period being $4,500. This, 
as in the other case, was mainly due to efficiency of 
the Railroad Commission as tax assessors. Also 
allowance may be made for an increase in the tax rate. 

34 Acts of 1897, ch. 5. 

35 See acts. 


THE TAXATION OF CORPORATIONS. 


81 


The privilege tax, so far as an increase is con¬ 
cerned, did not fare so well. The average showed an 
actual decrease, which was due to the decrease in the 
rate referred to above. The average receipts for the 
first decade for privilege taxes was $7,400, and for 
the second decade $7,000. These receipts have gradu¬ 
ally increased to amounts around $10,000 every two 
years to 1918. No receipts were reported except from 
1912 to 1916 for privileges, which were about equal 
during that period to ad valorem taxes. 

Probably these receipts are small as compared 
with other privilege taxes in the state. If so, then the 
privilege tax is ineffective and falls short of the inten¬ 
tion for which it is used. That is, the receipts from 
ad valorem taxation of these companies is small com¬ 
pared to the income such companies derive from busi¬ 
ness transacted in the state and if the privilege taxes 
fail to make up the deficiency, these companies do not 
bear an equal burden of taxation. This is one of many 
examples to show the need of an income tax law in 
Tennessee. 

Telephone. The first law enacted for assessment 
of telephone properties was passed in 1895, such 
properties previously having been assessed only 
for privilege taxes. This was followed by the 
general act referred to in connection with railroad 
and telegraph taxation. These companies have been 
assessed in connection with railroad and telegraph 
companies by the Railroad Commission since 1897. 

Up to 1900 but small revenue had been derived 
from telephone ad valorem taxes. The ad valorem re¬ 
ceipts, however, in 1918 amounted to $33,013. The 
privilege taxes from the same companies reached the 


82 


TAXATION IN TENNESSEE. 


remarkable sum of slightly less than $100,000 for the 
biennial period of 1917-18. 

Corporation Taxation In General. 

Historical Development. There are three kinds of 
corporations as to function—municipal, quasi-public, 
and private business corporations. Since the municipal 
corporation is itself an organization largely for taxing 
purposes, it requires no consideration here except in an 
incidental way. Therefore our subject in hand is con¬ 
fined to quasi-public corporations and other corpora¬ 
tions for business purposes. 

As was pointed out in connection with railroad tax¬ 
ation, all corporations in the beginning were taxed 
upon the privilege basis. That is to say, no logical 
method, up to the adoption of the constitution, had oc¬ 
curred to the legislators for taxing business enterprises 
other than upon the physical value of the plant itself. 
Consequently, the first plan hit upon for the taxation 
of corporations, other than upon privileges, was that 
adopted for the taxation of banks and banking asso¬ 
ciations. Therefore, it may be said, as a general prop¬ 
osition, that corporations were taxed upon the basis of 
the shares of stock to the shareholders. The assess¬ 
ment in all cases was made by the local assessor, ex¬ 
cept in such cases as are treated separately in this dis¬ 
cussion, and the collection of the taxes was made in 
the same manner as in the case of other forms of 
property. 38 

It may be said in the beginning, then, that the 
method of taxing banks determined largely the method 

36 See Assessment; also Collection. 


THE TAXATION OF CORPORATIONS. 


83 


of taxing all other corporations, except railroad and 
telegraph companies; and even in their case until 1875. 
That is to say, banks could only be taxed upon their 
shares to the shareholders, and in the earlier laws the 
provisions providing for the taxation of corporations 
were enacted conjointly with those providing for the 
taxation of banks. 37 

However, the tendency of the development, after 
the seventies, of this form of taxation was in the di¬ 
rection of the taxing both capital stock to the com¬ 
panies and the shares of stock to the stockholders. 
If it is kept in mind that corporations were taxed in 
the beginning in the same manner as banks, with the 
increasing tendency in favor of taxing both capital 
stock and shares of stock, together with such addition¬ 
al privilege taxes as were thought expedient to be 
levied, one is able to obtain a fair picture of corpora¬ 
tion taxation during the first twenty years following 
the adoption of the constitution. 

Acts of 1871 provided that every incorporated com¬ 
pany, except charitable, etc., shall pay into the treas¬ 
ury 6 mills on the dollar of all net earnings. This rate 
was later changed to 4 mills on gross receipts. 38 The 
same acts 39 further provided that in the event a cor¬ 
poration’s charter exempted shareholders from taxa¬ 
tion, such companies should be taxed “as is lawful.” 40 

The aim in this case evidently was to reach such 
corporations as railroad, telegraph, and other quasi¬ 
public enterprises. But since the public in general had 

37 See Bank Taxation. 

38 See Railroad Taxation. 

38 Acts 1873, ch. 118. 

40 Sec. 14. 


84 


TAXATION IN TENNESSEE. 


not yet learned to distinguish, at least from a taxation 
point of view, the different kinds of large business or¬ 
ganization, and, moreover, since the constitutional re¬ 
striction that all property shall be taxed equally had 
not been made clear to the law-makers, all forms of 
business organization, including banks, were grouped 
together in the same class for taxation purposes. 

Certain court decisions made in connection with 
cases of resistance against the payment of taxes by 
corporations which had previously escaped taxation, 
served to differentiate the classes of corporation prop¬ 
erty and ultimately to cause them to be considered 
separately in the tax laws. For example, as early as 
1875 special acts were passed for the assessment and 
collection of taxes upon the property of railroad com¬ 
panies, 41 and in 1877 the same thing occurred for tele¬ 
graph companies. 42 

The resistance referred to above, made by corpora¬ 
tions against taxation, was first made upon the ground 
of charter exemption, and later upon the ground of 
“double taxation.” Certain corporations were specially 
exempt from taxation; and the charters of other 
corporations not specially exempt contained the 
phraseology that all “rights and privileges” were 
conferred upon them “as other corporations.” 
But the Court held that “rights and privileges” 
referred to in their charters did not apply to 
exemption from taxation. The same opinion 
held further that exemptions from taxation were 
against the public policy, and were only allowed when 

41 See Railroad Taxation. 

42 See Telegraph and Telephone. 


THE TAXATION OF CORPORATIONS. 


85 


granted in clear and unmistakable terms. “The doubt/' 
says the opinion, “is always in favor of the state." 
Moreover, it was held that such exemptions as actually 
exist are not transferable. That is, in case of the inter¬ 
ests of a corporation were transferred, the right of 
exemption from taxation was not correspondingly 
transferred. 43 Thus the courts from time to time, in 
the interest of the public, peremptorily eliminated 
many cases of tax exemptions. 

The Supreme Court held the opinion in 1876 that 
the capital stock in a corporation and the shares owned 
by the stockholders are two distinct properties and 
exemption on one does not necessarily exempt the 
other, nor the tax upon the shareholders operate as 
a tax upon the capital stock. This interpretation was 
the basis of the practice of “double taxation" preva¬ 
lent ten years later. 

In 1881 the Court held the important opinion that 
under the act of 1873 joint stock companies are liable 
to pay the tax imposed upon their shareholders and 
also upon their real estate, though the real estate mayi 
have been purchased with money paid in as capital 
stock. The same opinion also again held that prop¬ 
erty exempt in the hands of a corporation will not 
be exempt in the hands of the purchaser. 44 

As to the responsibility of corporations for the 
obligations of their stockholders, acts of 1885 provid¬ 
ed that corporations, the same as banks, 45 should 

43 9 Baxter, 546. 

44 Gas Light Co. vs. Mayor of Nashville, Court Reports. 
1881. 

45 See Taxation of Banks. 


86 


TAXATION IN TENNESSEE. 


reserve dividends to guarantee the payment of taxes. 
The same provision re-enacted in 1887 was held un¬ 
constitutional upon the ground that a corporation could 
not be held accountable for the payment of taxes of 
the bondholders; but the act was held valid as to 
stocks. 46 

In order to safeguard against certain forms of 
charter exemptions and to prevent some companies 
from escaping taxation because of certain provisions 
in their charters, the following clause was enacted in 
1887; and re-enacted in 1889: “In case a charter 
exempts or partially exempts a company or corpora¬ 
tion from tax on shares of stock, or in which a rate 
on shares is fixed, and declared to be in lieu of all 
other taxes, taxes for state, county, and municipal 
purposes shall be assessed and levied at a rate uniform 
with the rate levied upon other taxable property, upon 
the capital stock of the corporation, the value of which 
capital stock shall be fixed and returned by the assessor 
as being equal to the aggregate market value of all 
shares of stock in the corporation, including the net 
surplus.” Of course it is clear that the attempt in 
this case was to cause certain corporations which were 
exempt from taxation by charters granted at an early 
date or during the period when the citizens of Ten¬ 
nessee were unable because of political conditions to 
protect the best interests of the state, to bear an equal 
share and burden of taxation. 47 

The difficulty of determining the situs of personal 
property, Plehn says, is the reason why the attempt 

46 3 Pickle, 406. 

47 Acts 1889, ch. 96. 


THE TAXATION OF CORPORATIONS. 


87 


to tax stocks and bonds to the owner has been prac¬ 
tically abandoned and in its place it has become cus¬ 
tomary to tax the property represented by such securi¬ 
ties to the corporation, and to ignore the stockholder. 48 
This probably affected the policy followed in Ten¬ 
nessee. A court decision in 1888, discussed fully in 
connection with taxing the capital stock of banks, 49 
emphasized the importance of separating banks and 
other corporations for purposes of taxation in the 
succeeding acts. Since it was impossible to tax banks 
upon capital stock, the manner of assessing quasi¬ 
public and other corporations, in order to provide 
equitable assessment, had to be changed and provided 
for separately in the law, as will appear in connection 
with the treatment of the present plan of taxing cor¬ 
porations. 

The problem of assessing large corporate property, 
and also the desire on the part of the public to make 
certain concessions to business enterprises operated in 
the interest of the public, caused quasi-public cor¬ 
porations to be distinguished from all other corpora¬ 
tions in the acts after that date. The reason for this 
will be apparent when we come to consider the present 
method of assessing corporation property. 

In 1889 and the years directly preceding, the cor¬ 
porations protested vigorously upon the possibility of 
“double taxation” in the acts of 1887. 50 That is, by 
the wording of certain provisions of the act, a cor¬ 
poration might have been, and doubtless many were, 
assessed for taxes both upon the value of the plant 

48 Plehn, Introduction to Public Finance. 

49 See Bank Taxation. 

Ch. 2. 


TAXATION IN TENNESSEE. 


and upon the shares of stock. The General Assembly 
of 1889, by acts of that date, intended to remedy this 
situation by relieving the corporations of the possi¬ 
bility of this unjust and oppressive feature of the act 
of 1887. 

This act provided that the value of the shares 
should be looked to in arriving at the value of the 
capital stock, and that this should be in no event held 
to be less than the actual value of its bonded indebted¬ 
ness. The value of the stocks and bonds, by the act, 
is a measure or evidence of the value of the property 
which is taxed. This within itself, perhaps, was not 
especially objectionable; but in the background of the 
wording of the provision there still lurked the possi¬ 
bility of “double taxation;” that is, that the shares of 
stock might be taxed in addition to the tax upon the 
franchises and tangible property. 

The act, however, as it would be interpreted now, 
or might have been interpreted then, did not provide 
for the taxation of both, as set forth above. The 
fault was in the vagueness of the language of the 
provision. In 1890 Governor Taylor recommended 
the rewording of the act of 1889, 51 as it applied to 
the taxation of corporations; and the Assembly, acting 
upon his suggestion, reworded the clause so that it 
specifically and unequivocably provided that the shares 
of stock issued by corporate organizations under the 
laws of Tennessee shall not be assessed for taxation 
either to the corporation or against the owners of the 
shares. 52 

51 Governor Taylor, Message to the Legislature, 1890. 

52 Acts Second Sess. 1890, ch. 29. 


THE TAXATION OF CORPORATIONS. 


89 


This new plan of taxing corporations, referred to 
above, was just the opposite of that of taxing banking 
institutions—the latter expressly providing for the 
assessment of shares of stock and not capital stock. 
This, however, is easily understood when it is remem¬ 
bered that the capital of national banks was not tax¬ 
able. As pointed out in the beginning, it is likely that 
this restriction as to the taxation of national banks 
upon their capital stock caused early legislators to 
adopt the methods employed for taxing banks in taxing 
all corporations. At this time, 1889, the provisions 
for taxing banks were differentiated from those deal¬ 
ing with other corporations, and thenceforward bank¬ 
ing institutions have been treated separately for taxa¬ 
tion in the statutes. 

The enforcement of the assessment law of 1889, 
amended in 1890, engendered serious and even bitter 
litigation between the state and large and prosperous 
corporations when the latter were called upon to pay 
the taxes assessed against them. But the ultimate 
enforcement of the provisions of the acts and the 
evidence of large returns upon the assessment books 
reveal the merits of the law. 

The laws of 1887 and 1889 brought to light much 
property which had previously escaped taxation, as is 
evidenced by the Comptroller’s report of 1890, which 
shows that assessments had increased during the pre¬ 
ceding four years about $123,000,000, and about 
$25,000,000 during the single year of 1890. Part of 
this amount was doubtless due to increase in the value 
of property and the development of the state’s re¬ 
sources, but that it was largely due to the new assess¬ 
ment laws is evidenced by the unusual increase in the 


90 


TAXATION IN TENNESSEE. 


value of personal property during the years immedi¬ 
ately succeeding the passage of the acts. 

In 1895 certain provisions in the law were specific 
in separate sections, so as to set forth definitely the 
legislative intent. Some of these were that no ad 
valorem tax should be assessed against the property 
of any foreign corporation, except such as might be 
within the state, and furthermore that the shareholders 
were not to be assessed upon the shares of stock. 
These points were evidently emphasized and explicitly 
enumerated to invite foreign corporations into the 
state, and to retrieve the state from the reputation it 
might have sustained in preceding years from its 
policy of “double taxation.” 53 

The same act which indicated a desire to invite 
foreign corporations into the state also defined the 
situs of intangible property, which was that intangible 
property arising from the operation of business within 
the county shall be included in the value of the prop¬ 
erty in that county, and only the intangible property 
arising from the operation of business in the county 
of domicile shall be assigned to that county for pur¬ 
poses of taxation. That is to say, if such forms of 
intangible property as notes, and the like, come into 
existence, they are to be taxed at the place where they 
come into existence by the process of business opera¬ 
tions. 54 

From time to time the properties of certain forms 
of quasi-public corporations and companies have be¬ 
come assessable for taxation by the Railroad Commis¬ 
sion, ex-officio State Tax Assessors, in a manner simi- 

63 Acts 1895. 

54 Acts 1895, ch. 120. 


THE TAXATION OF CORPORATIONS. 


91 


lar to that of railroad and telegraph property. Tele¬ 
phone companies were transferred to that department 
in 1895, 55 street railway and interurban companies in 
1905, 56 hydro-electric companies in 1915, 57 and cer¬ 
tain gas companies in 1917. The power of the Rail¬ 
road Commission to assess the latter class of property 
is now in litigation. The law, however, is virtually 
repealed by implication by acts of 1919, 58 and it is 
probable that the suit will be withdrawn and a test 
case of the new act instituted in its stead. The sig¬ 
nificance of these changes enumerated above will be 
noted in connection with the recent reforms. 59 

A brief summary of the preceding paragraphs will 
reveal more clearly the successive steps in the develop¬ 
ment of corporation taxation in Tennessee. In the 
beginning all corporations and business enterprises, 
except merchants, were assessed upon property and 
privileges in the same general manner. Railroad and 
telegraph property was the first to be set aside for 
special assessment. And as has been shown, the gen¬ 
eral plan for taxing all other corporations was the 
same as for banks, namely, the assessment of shares 
of stock to the shareholder, and the same provision in 
the acts which provided for the taxation of banks 
always included “joint stock companies and other cor¬ 
porations.^ By acts of 1887 it was possible to tax 
corporations both upon the capital stock to the cor- 

55 See Telephone Taxation. 

56 Acts of 1905, ch. 513. 

57 Acts 1915, ch. 1. 

ss Ch. 3. 

59 See Recent Reforms in Taxation. 


92 


TAXATION IN TENNESSEE. 


porations and the shares of stock to the shareholders 
and bonds to the bondholders. But the interpretation 
of the act by the courts exempted banks from taxation 
of capital stock. As pointed out before, this inter¬ 
pretation served more than ever to reveal the com¬ 
plications involved in trying to tax all corporations in 
the same way, and at the same time it emphasized the 
need and importance of considering the several classes 
of corporations separately in the tax laws. 

Consequently, in 1889 the banks were distinguished 
as a special form of property for the purpose of taxa¬ 
tion. Also, quasi-public corporations, such as gas¬ 
works, water-works, electric light companies, street 
railroads, and all other corporations public in their 
character, were distinguished in the assessment laws 
from manufacturing companies and corporations, and 
all other corporations other than quasi-public and 
banking institutions. 60 Finally, in 1889 the method 
of assessing the property of manufacturing enterprises 
was distinguished from all other companies and cor¬ 
porations. 

With this brief sketch before us a summary de¬ 
fining the method in use for the taxation of each of 
the special forms of business organization,—namely, 
manufacturing, quasi-public, and other corporations 
operating in the state, and banking institutions,—as 
each form is considered in acts of 1907,—should make 
sufficiently clear the nature of the statutes and the 
prevailing practices involved in the ad valorem taxa¬ 
tion of corporations and other business enterprises of 
the state. 


60 Ch. 96, sec. 14. 


THE TAXATION OF CORPORATIONS. 


93 


Present laws are in most cases products and com¬ 
binations of previous ones, modified to meet changing 
conditions. Immediate changes are not usually so 
perceptible as are changes shown by a comparison of 
acts of widely different dates. For this reason an 
interpretation of the present plan of taxation of cor¬ 
porations is concisely set forth in the following pages 
by way of contrast with the method used before 1889. 

Manufacturing. By acts of 1907, 61 all persons, 
co-partners, and companies engaged in manufacturing 
are required to pay “ad valorem tax upon the actual 
cash value of the property” used in the process of 
manufacturing and upon “the articles in manufacture,” 
except the value of articles being manufactured from 
produce in the state shall be deducted in assessing for 
taxes. That is to say, the value of the plant and goods 
in the process of manufacture are assessable at actual 
cash value, except that part of the goods exempted by 
the constitution, namely, goods manufactured from the 
produce of the state. The act and section further pro¬ 
vide for the assessment of the property of manufactur¬ 
ing corporations, which is the same as for companies, 
etc., except in so far as the nature of the corporate 
business prevents the two from being identical. The 
value of articles being manufactured from produce of 
the state is also deducted from the value of the aggre¬ 
gate corporate property, in addition to the assessed 
value of the corporate realty and tangible personalty 
assessed otherwise, in arriving at the assessed value 
of the corporate property. The manner of assessing 
corporate property as such is defined in connection 


Ch. 602. 


94 


TAXATION IN TENNESSEE. 


with the subject of quasi-public and other corpora¬ 
tions. 62 

For the purpose of securing an estimate and arriv¬ 
ing at the value of such property, the assessor requires 
of the president or manager a special report. This 
report, provided it is accurately and conscientiously 
made, affords all the necessary information to the 
assessor for his purpose of arriving at the assessment 
value of the property. 63 

The Court has held that the legislative intention 
was that manufacturing corporations should be as¬ 
sessed upon the capital stock and corporate property, 
and hence that the shares of stock were exempt from 
further taxation. 64 The significance of this decision, 
however, is more in connection wtih the taxation of 
corporations as such, rather than as manufacturing 
corporations as a class. 

Quasi-Public. All quasi-public corporations, such 
as gas-works, water-works, electric light, and dummy 
railroad companies, and all other corporations public 
in their character which possess rights, franchises, etc., 
are required to pay ad valorem taxes upon the actual 
value of their corporate property, including its fran¬ 
chises, easements, incorporeal rights, privileges, and 
all other corporate property, which total value shall 
not be less than the aggregate value of both its shares 
of stock and bonded debt, as based upon the market 
value of same. However, the assessed value of the 
corporate realty and tangible personalty otherwise 

62 See Quasi-public. Acts 1907, ch. 602. 

63 Sec. 22. For situs see Other Corporations. 

64 1 Thompson, 128. 


THE TAXATION OF CORPORATIONS. 


95 


assessed is to be deducted from the value of the cor¬ 
porate property or capital stock, in making the assess¬ 
ment. In computing the value of corporate property 
or capital stock the assessed value of the realty and 
tangible personalty is deducted from the total cash 
value of the corporate property. The remainder con¬ 
stitutes the assessing value. In connection with manu¬ 
facturing corporations it should be remembered that 
the value of articles from produce of the state in the 
process of manufacture is also deducted. 

Other Corporations . All corporations, both foreign 
and domestic, are assessed for taxes in the same man¬ 
ner as quasi-public corporations, the method of which 
is defined above, except railroad, telegraph, telephone, 
street railway and interurban, building and loan, insur¬ 
ance, manufacturing, and banking companies and cor¬ 
porations. 65 The president or manager, as in the case 
of other corporations considered elsewhere, is com¬ 
pelled to make the necessary report required by the 
tax assessor. 66 

The situs of the property of domestic corporations 
is the same as defined in earlier laws (1889), namely, 
that property having a local situs, such as realty, in¬ 
tangible personalty having its origin in the operation 
of local business, etc., shall be assessed in the district 
where found. In case it is not apparent as to the 
place of business, then the situs is to be in the district 
fixed in the charter as the meeting place of the stock¬ 
holders. 

65 Nate: The method for each of these exceptions may 
be found in connection with appropriate headings. 

66 For copy of report, see ch. 602, acts 1907. 


96 


TAXATION IN TENNESSEE. 


The situs of other forms of intangible personalty, 
as a whole is not so easily defined. As a general 
proposition, however, the following holds true: 
Intangible property, such as notes, and similar forms 
of property, have the situs of the particular local 
division of the corporation which produced the 
intangible personalty in the course of business opera¬ 
tions. However, such intangible property as comes 
into existence by the operation of the business of the 
corporation as a whole, both within and without the 
state or within more than one county or taxing dis¬ 
trict within the same state, is distributable to the 
whole field of operation for the purpose of taxation. 
The situs of the shares of stock is that of the business 
entity, but the situs of the bonds is that of the owner. 

In arriving at the value of corporate property of 
capital stock belonging within the state or a given 
district, the assessor shall deduct from the total capital 
stock of the corporate property the value of all real 
estate and tangible personalty within the state, and 
the actual cash value of all property outside the state. 
Foreign corporations shall be assessed upon the actual 
cash value of the corporate property within the state, 
the intangible and franchise value to be included in 
the total valuation. 67 

The Court held in connection with the above that 
the intangible property of a foreign corporation having 
its situs in this state may to that extent be assessed. 
Such assessment is generally made by considering the 
market value of the stock, bonded indebtedness, tangi¬ 
ble property of the corporation, and its gross receipts 
and net earnings. 

Sec. 23. 


THE TAXATION OF CORPORATIONS. 


97 


Since the only statutory provision enabling the 
assessment of intangible property of corporations 
operating from without the state provides only for the 
taxation of the corporate property of the branch busi¬ 
ness within the state, it results that a foreign corpora¬ 
tion cannot be taxed on any of its intangible property 
in this state for the reason that the statutes fail to fix 
the situs of such intangible property as might be taxed 
or to provide a method of assessment of such prop¬ 
erty. 68 

In case a company or corporation is exempt from 
taxation of stock and shares, in whole or in part, where 
the charter states that such exemption shall be in 
lieu of all other taxes, they shall be assessed upon 
the value of the shares of stock plus net surplus. 
Where a company’s charter contracts to pay the state 
a certain per cent on each share of stock, such com¬ 
pany shall be credited therefor upon its assessment of 
capital stock. 

The president or manager of a corporation is to 
pay the tax and charge it to the shareholders. In case 
the tax becomes delinquent, the shares may be sold 
and the tax collected. This operates whether there 
is a dividend or not. All taxes from property of cor¬ 
porations and companies enumerated above are payable 
to the county trustee, the same as from all other prop¬ 
erty of the same or similar class. 69 

It is not so evident that corporations have often 
escaped taxation under the present laws. In justice 

es 14 Cates, 281. 

69 See Collection. Acts 1907, ch. 602. 


98 


TAXATION IN TENNESSEE. 


to corporations as business entities, which are sup¬ 
posed to be upon equal footing with all other forms 
of business organizations, they should not be doubly 
taxed upon their property values. If such a corpora¬ 
tion enjoys a privilege which gives it an advantage 
over competitive forms of business, then it should be 
taxed upon its privilege. The constitution allows and 
the statutes fully provide the plan of double taxation; 
that is, upon ad valorem and privileges, which con¬ 
ceivably may be justly and equitably used, and justice 
and fairness are only the harder to obtain so long as 
the privileges of a company are taxed by an over¬ 
lapping of tangible and intangible forms of corporation 
properties. 70 

It is impossible to show comparative receipts de¬ 
rived from ad valorem taxation of corporation proper¬ 
ties, because the taxes are collected together with other 
property taxes by the county trustees and indiscrimi¬ 
nately reported to the Comptroller. Therefore, such 
receipts will only be considered in connection with 
taxes reported by the county trustees in the process 
of collection. 

The plan of quasi-public corporation taxation has 
been materially changed by recent acts of the Legis¬ 
lature. 71 

Other Quasi-Public Corporations. 

Quasi-public corporations, other than those subject 
to assessment for taxation by the Railroad Commis¬ 
sion, which require special consideration in connection 

70 Note: As to special taxes and fees collected from 
corporations, see Fees. 

71 See Recent Reforms in Taxation. 


THE TAXATION OF CORPORATIONS. 


99 


with the history and development of taxation in Ten¬ 
nessee, are sleeping car companies, express companies, 
news companies, and railway terminal companies. 

These companies are treated separately in this dis¬ 
cussion because of the peculiar character of their busi¬ 
ness operations. They are required to report directly 
to the Comptroller, and are taxed at a high rate upon 
privileges. They are assessed for ad valorem taxation 
in the same manner as other corporations, and in addi¬ 
tion are taxed by special statutory provisions upon 
privileges. The latter form of taxation is necessary 
for these companies because of the comparatively 
small amount of tangible property owned by them as 
compared to the value of business secured. 

Sleeping Car Companies. In 1877 a law was 
enacted requiring sleeping car companies to report to 
the Comptroller, as provided by statute, by the first 
day of May each year, and furthermore they were 
required to pay $50 as a privilege tax upon each car 
operated in the state. 72 The procedure in the process 
of assessment was practically the same as exercised 
in the taxation of telegraph companies, the provision 
for taxing such companies appearing conjointly with 
that of telegraph companies. In 1881 the rate was 
raised to $75 per car, 73 and in 1887 it was further 
raised to $500 per car. 74 In 1889, which was during 
the period of excessive taxation of corporations, the 
rate was fixed at $3,000 for each company operating 
in the state. 75 

72 Acts 1877, ch. 16. 

73 Acts 1881, ch. 149. 

74 Acts of 1887, ch. 1. 

75 Acts 1889, ch. 130. 


100 


TAXATION IN TENNESSEE. 


The high rate of privilege taxation last referred 
to caused much protest and litigation. In 1893 the 
Legislature reduced the rate to $1,800, after which the 
suits were dismissed and the companies paid the taxes 
promptly thereafter. 76 For twenty years after 1894 
the rate oscillated between two and three thousand 
dollars per annum, but in 1915 it was fixed at $4,000 
per company. 

The income from the taxation of these companies 
has been comparatively small, as the figures for two 
representative years will show. In 1898 the receipts 
from taxes amounted to $2,500; and in 1918 to $4,000. 
These figures are the same as the rate provided for 
sleeping car companies because there was only one 
company operating in the state during those years. 

Express Companies. Express companies, like sleep¬ 
ing car companies, are taxed ad valorem , as other 
quasi-public corporations. Since 1881 they have been 
taxed upon privileges by special statutory provision. 
The rate in 1881 for 100 miles or less was $1,000, 
and for lines over 100 miles, $2,000. 77 In 1889 the 
rate on lines of more than 100 miles was raised to 
$3,000, but in 1893 they were reduced to $500 and 
$2,000, respectively, 78 which schedule remained fixed 
until 1907. 

In 1907 the respective rates for privilege taxes 
upon express companies became $1,000 and $2,500, 
which is the present schedule. The receipts from the 
taxation of express companies from 1898 to 1918 have 
ranged from $9,000 to $15,000 per biennial period. 

76 Acts 1893, ch. 89. Comptroller’s Report, 1894. 

77 Acts 1881, ch. 149. 

76 Acts 1893, ch. 89. 


THE TAXATION OF CORPORATIONS. 


101 


These figures are low as compared with the large 
volume of business carried on by these companies. 
Especially is it considered so in view of the fact, as 
pointed out in the beginning, that the nature of the 
express business renders these companies largely ex¬ 
empt from ad valorem taxation. 

News Companies. News companies have been * 
taxed specially upon privileges since 1895. The rate 
at that time was $500 per company, which remained 
the same until 1907. The Legislature of 1907 changed 
the rate to $750 per annum, and that of 1915 to $1,000. 
Again in 1917 the rate was advanced and adopted in 
the form of a graduated scale. The maximum for 
over 1,000 miles was fixed at $1,500 and the minimum 
of 300 miles or less at $50. The receipts from this 
source have been small, ranging from $3,000 to $4,000 
every two years during the last two decades. 

Terminal Companies. Terminal companies are 
assessed for taxes by the Railroad Commission and 
in the same manner as railroad property. Within the 
state there are less than a half dozen such companies, 
with an assessment value of about $1,000,000. Some 
of these companies are owned by the leading railroad 
companies of the state. Before 1914 terminal com¬ 
panies were assessed upon a privilege basis, but since 
that date no privilege tax has been paid. The taxes 
are paid directly to the Comptroller, the same as rail¬ 
road taxes. 

Hydro-Electric Companies. Hydro-electric com¬ 
panies are assessed for taxation in the same manner 
as railroad companies. The receipts from this source 
for 1915-16, the first years of their assessment for 


102 


TAXATION IN TENNESSEE. 


taxation by the Railroad Commission, were $8,593, 
and for the next biennial period, 1917-18, they 
amounted to $31,558. This great gain is significant 
for two reasons: first, that the assessment of taxes 
for these companies will be more scientific and efficient 
in the future, and secondly, that this will probably be 
a source of large revenues because of the rapid devel¬ 
opment of these corporations and companies in the 
state. 

Turnpikes. Turnpikes are taxed ad valorem as 
other forms of realty. In addition a privilege tax has 
been collected since 1891. The first rate was $25 per 
annum for each gate which collected toll both ways. 
The rate was decreased to $12 two years later and 
put back in 1897 to $25. In 1899 the rate was classi¬ 
fied in much the same manner as the present statute 
and with similar charges. 

The act of 1917 provides that each tollgate that 
collects toll in counties of 50,000 inhabitants and over 
shall pay per annum $50; each gate in counties of 
population of 300,000 to 500,000, $40; (in 1899, $25;) 
and in counties of less than 300,000, $12.50. These 
rates provided for the collection of fares both ways. 
In case they collect only one way, they pay only one- 
half of the above rate. 

Any corporation or turnpike company which in¬ 
creases its tolls for one way beyond what the rates 
now are, shall pay a privilege tax for each gate of 
$250. It is evident that the latter clause is inserted 
to prevent excessive toll rates. 79 

The revenue from the taxation of turnpike com- 
Acts 1917, ch. 101. 


THE TAXATION OF CORPORATIONS. 


103 


panies has come to be a comparatively small item, 
because the counties are gradually absorbing such 
enterprises by purchasing them. The privilege tax 
receipts for 1917 amounted to $1,340 and for 1918, 
$2,128. 

The turnpike in Tennessee has played a good part 
in showing the advantages of having good roads. In 
the early history such projects were promoted for 
profit only, but in recent years enterprising citizens 
have organized such companies and built roads in 
order to promote the interest in good roads in the state. 

Taxation of Banks. 

Historical Development. National banks were es¬ 
tablished during the Civil War to aid in the sale of 
federal bonds, and to induce the national banks to hold 
the bonds such banks were allowed to issue notes se¬ 
cured by the bonds. Of course these national bank¬ 
notes came into competition with the notes issued by 
the banks chartered by the states. In order to drive 
the state bank-notes out of existence, Congress passed 
an act imposing a 10 per cent tax on all bank-notes 
except those of national banks. The courts had long 
before decided that the states could not tax a federal 
bank except by express permission of Congress, and it 
was feared if the states were allowed to tax national 
banks, that they might retaliate by discriminating taxes 
against national banks. So Congress found it neces¬ 
sary to provide a method by which states should tax 
national banks. 

The statute passed by Congress provides that the 
shares of stock in national banks must be taxed to 
the shareholder, not to the bank, but that the bank 


104 


TAXATION IN TENNESSEE. 


may be the agent of the stockholder in paying the tax; 
and also that the shares of stock shall not be taxed 
at a rate higher than is imposed on any other moneyed 
capital. Furthermore, to prevent double taxation in 
case the owner resided in a different state or town 
from which the bank was situated, Congress defined 
the situs of the stock as in the place where the bank 
was located. 

As a general proposition, therefore, the method of 
taxing banks in Tennessee was pre-determined by 
Congress. The plan of taxation was made uniform 
for all banking institutions to prevent the state’s own 
banks from being placed in an attitude of unequal and 
unjust competition with those chartered by the federal 
government. 80 

Then, too, the plan of taxing banks also largely 
determined the method of taxing other corporations 
and joint stock companies. For almost twenty years 
after the adoption of the constitution, banks and other 
corporate businesses were taxed in the same manner, 
except railroad and telegraph companies. 81 

The first general assessment act applying to banks 
was passed in 1873, 82 which contained the essential 
principles outlined by Congress relative to the taxation 
of banks. However, the act was not to be construed 
so as to exempt real estate in the possession of banks, 
and all other joint stock companies and corporations 
were to be taxed in the same manner. Moreover, as 
a corporation, if the charter exempted the shareholders 

80 Plehn, Introduction to Public Finance. 

81 See Corporations; also Railroad and Telegraph Taxa¬ 
tion. 

82 Ch. 118. 


THE TAXATION OF CORPORATIONS. 


105 


from taxation, the institution in question should be 
taxed in such manner as is lawful. 83 This alternative 
in taxation was possible in two ways—first, the bank 
could be taxed on privileges, and secondly, in case it 
was other than a national bank, it could be taxed on 
its capital stock. 

The act further required that the president or man¬ 
ager of the bank should make an annual report to 
the assessor, giving the names of the stockholders 
with their shares of stock. The banks were required 
to hold such amount of dividends as was necessary to 
guarantee the payment of each individual partner’s 
tax. 84 

The Court held in 1888 that the assessment upon 
capital stock of a bank, as provided by acts of 1883, 
was void. This provision was practically the same 
as the one in acts of 1873. 85 Acts of 1885 provided 
that the bank or corporation should pay the taxes and 
charge same to the stockholders. This change in the 
law was from merely guaranteeing to that of actually 
paying the taxes by the corporation or company. How¬ 
ever, the acts of 1889 changed the wording back to 
merely guaranteeing the payment, and it has thus 
remained in so far as it relates to the taxation of 
banks. 

The point made in the preceding paragraph is not 
significant in connection with bank taxation, because 
the federal government determines the method of their 
taxation, but it is significant in relation to the taxa¬ 
tion of banks as distinguished from other corporations. 

83 Sec. 14. 

84 Secs. 19, 23. 

85 2 Pickle, 615. 


106 


TAXATION IN TENNESSEE. 


Acts of 1887 provided the possibility, either inten¬ 
tionally or unintentionally, of “double taxation/’ which 
is discussed more at length in connection with corpora¬ 
tion taxation. That is, it was possible, under that 
act, to tax certain kinds of business upon both capital 
and shares of stock. The ruling of the court, referred 
to above, merely removed the possibility of “double 
taxation” in so far as the law applied to banking insti¬ 
tutions, and left it, by way of contrast, more strongly 
than ever as it applied to the taxation of other cor¬ 
porations. 

The taxation of banks and banking associations 
previous to 1889 had been provided for in connection 
with all other corporations and manufacturing com¬ 
panies, but the acts of that year distinguished and pro¬ 
vided separately for the taxation of banks, quasi¬ 
public corporations, and other corporations and com¬ 
panies. 86 The separation in the statutes was due, not 
to the change of plan in taxing banks, but to a com¬ 
plete revolution in the methods of taxing certain cor¬ 
porations and companies. After 1889 banks were 
made exceptions to the rule of taxing corporations, 
and were treated in a special manner in all subsequent 
acts. That is to say, the method of making the assess¬ 
ment was no longer given conjointly with that of 
other corporations. 87 

A brief explanation of the present method of tax¬ 
ing banks will show in a large measure the plan 
adopted in the acts of 1889. However, before begin¬ 
ning that explanation, it should be said that it does 
not apply to savings banks, which have been taxed in 

86 See Corporation Taxation. 

87 See Corporation Taxation. 


THE TAXATION OF CORPORATIONS. 107 

practically the same manner throughout the history of 
taxation under the present constitution. The plan of 
taxing these banks is by levying the usual rate on the 
gross earnings and the net surplus—save that the 
term “net surplus” did not appear in the earlier laws. 

Present Plan of Taxing Banks. The assessment 
of banks for taxation is included in the list of com¬ 
panies such as savings banks, loan, insurance, invest¬ 
ment, and cemetery companies, or other company or 
corporation, except quasi-public and other corporations 
and manufacturing companies separately treated 
above. 88 In this case the shares of stock are assessed 
to the shareholder, such assessment being in lieu of 
all other assessments of the capital stock or corporate 
property. The manner of assessing the shares is by 
looking to the market or actual value and deducting the 
value of realty and tangible personalty. Real estate 
and tangible personalty are to be assessed to the com¬ 
panies under consideration in the same manner as such 
property is assessed to persons. 

Banks in the beginning were also taxed upon the 
privilege basis. The rate for such taxes in 1881 was 
$500 a year for banks in cities with over 10,000 inhabi¬ 
tants; in towns of 5,000 to 10,000 inhabitants, $250; 
and in counties of less than 5,000, $100. 89 In 1889 the 
basis of the rate was changed, this time $2 for each 
$1,000 capital and surplus. Acts of 1893, which is 
the last act providing for the taxation of banks upon 
privileges, reduced the rate provided by the acts of 
1889 to $1. The same act further provided that 

88 See Special Forms of Taxation. 

89 Acts 1881, ch. 106. 


108 


TAXATION IN TENNESSEE. 


“banks operating under special charters shall pay 
according to the provisions of their charters/’ 90 

The impression is that the above privilege rates 
applied to all banks other than national banks. In 
1875 the courts held the opinion that national banks 
chartered by the United States are not liable to the 
privilege tax imposed by a city ordinance. The privi¬ 
lege tax was ultimately removed, no doubt for the 
reason set forth in the beginning—namely, that state 
banks were placed in a position of unequal competition 
with national banks. 

Certain fees are now charged state banks for 
inspection, the rate of which is regulated so as to pay 
the maintenance expense of the department of bank 
inspectors. The fees collected in this department in 
1917 amounted to $19,404, and in 1918, $21,342. The 
expenditures for maintenance during those years were 
somewhat in excess of receipts, but it is generally 
considered that the office of bank inspectors is self- 
supporting. The taxes from banks are collected by 
the county trustees; hence, the comparative figures 
to show the income to the state from this source are 
not easily available. 

90 Acts 1893, ch. 89. 


CHAPTER IV. 

PRIVILEGE AND OCCUPATION TAXATION. 

Merchants'' Tax. 

The constitution provides that “the Legislature 
shall have power to tax merchants, peddlers, and 
privileges in such manner as they shall from time to 
time direct.” The constitution fails to indicate the 
method or plan of taxing merchants; so the plan 
adopted is peculiar with respect to taxing merchants’ 
stock at the same rate ad valorem as all other 
property, and in addition as a privilege at the same 
or a less rate, the privilege being measured by the 
assessed value. The principle had been long estab¬ 
lished, as referred to above, that “The Legislature 
may graduate the amount of the privilege tax by the 
extent of the party’s business and the quantity of 
goods sold.” 1 From the adoption of the constitution, 
the merchants’ tax has been an important feature of 
the revenue system of Tennessee. 

By acts of 1870, 2 the tax upon sales and privilege 
of merchandising was abolished. Acts of 1871 pro¬ 
vided that, “in addition to the ad valorem tax to be 
paid by merchants on their capital,” they should also 
pay a license tax equal in amount to the ad valorem 
tax. The license, however, in no case was to be less 
than $5. 3 That is to say, by the new law the cost of 
capital invested was taken as the basis for assessment 
of both ad valorem and privilege taxes. 

1 Webb and Meigs, Tax Digest, Vol. 3, p. 2893. 

2 Sec. 202. 

3 Acts 1871, ch. 51, sec. 2. 


no 


TAXATION IN TENNESSEE. 


Test cases for the merchants’ tax, upon the above 
basis of assessment, soon reached the Supreme Court. 
The court held, in the first place, that certain decisions 
preceding the adoption of the present constitution 
were still operative in case of merchants’ privilege tax. 
These were: (1) That a privilege is whatever the 
Legislature chooses to tax as such; 4 (2) that a cor¬ 
poration cannot create a privilege, or discriminate 
between persons exercising the same privilege, but 
may tax it when created by the state; 5 (3) that privi¬ 
leges may be taxed at the discretion of the Legisla¬ 
ture; 6 (4) that one sort of privilege may be taxed 
without reference to another; 7 (5) that the principle 
of taxation which applies to property is impracticable 
as to privileges ; 8 (6) that the mode of taxation by 
measuring value of privilege by sales is admissible; 9 
(7) that a tax on privilege, though measured by sales 
of property, is not a tax on property; 10 (8) that mer¬ 
chandising is a privilege. 11 

The principle involved in case of the merchants* 
tax was virtually one of “double taxation,” which was 
early justified from a point of law if not from prin¬ 
ciple. In the first place, the court ruled that the mer¬ 
chants’ tax was not a double tax, but that mer¬ 
chandising is a privilege subject to taxation. Then, 

4 Mabry vs. Tarver, 1 Hume, 98 per Reese. 

5 Mayor of Nash. v. A1 thorp, 5 col., 554. 

6 1 Hume, 240. 

7 1 Hume, 240. 

8 2 Head, 366. 

9 8 Hume, 293. 

2 Head, 462. 

14 8 Hume, 293. 


PRIVILEGE AND OCCUPATION TAXATION. Ill 


too, the merchant operates under a license, paying for 
which is not a double tax. 

Since it was logical to tax merchants upon privi¬ 
lege, and since the constitution forbids the taxation 
of property at a rate higher in one case than another, 
and the taxation of the portion of a merchant’s capital 
used in the purchase of merchandise sold by him to 
non-residents and sent beyond the state, it was neces¬ 
sary to define for purposes of taxation a part of the 
merchants’ tax as being based upon privileges. 

Previous to the act of 1870, a per cent of saies 
had been collected from merchants; and by that act 
a specific tax upon each additional $10,000 capital 
used. There was a possibility by such an act to tax 
certain merchandise sent beyond the state at a rate 
higher than other property; so it was provided in the 
new constitution that capital used in purchasing goods 
actually sold to non-residents should not be doubly 
burdened by taxation. Hence the act of 1871 changed 
the manner of assessing merchants’ property. 

The greatest stock of goods on hand was the basis 
provided by the act for determining the amount of 
the license tax. This method of valuation for the 
privilege tax was later modified to the present basis. 12 

The court justified the merchants’ double tax upon 
the ground of privilege taxation, but the public—that 
is, the people who approved it—did so upon the prin¬ 
ciple that the merchant is made a tax collector to 
secure indirectly revenues from a class of people 
otherwise exempt. That is to say, the merchants’ tax 
is supposed to be shifted upon the principle that a 

12 Friedman Bros. vs. Mathes, 8 Heis., 489. 


112 


TAXATION IN TENNESSEE. 


great number of people are entirely exempt from 
taxation because of the constitutional exemption of 
$1,000 worth of personalty, and a great many people 
do not own or report any more than that amount. 
Thus, if they buy any goods, the advocates of the 
merchants’ tax argued, they are taxed through the 
merchant, who in turn protects himself by a larger 
margin of profit. 13 

Acts of 1881 provided that the merchants’ privilege 
license tax should be paid at the rate of 30 cents on 
the hundred dollars of actual value of stock, 20 cents 
of which was for state and 10 cents for school pur¬ 
poses. The state tax for the year was 40 cents per 
hundred dollars, which shows a reduction of rate upon 
merchants’ privilege tax as compared with state rate, 
and which continued to be reduced after that time. 
The basis for the assessment of merchants’ capital 
for 1881, which is representative for the period, was 
upon the aggregate capital used “in any matter of 
trading” during the preceding twelve months. 14 This, 
however, was not to operate to prevent the charge of 
an occupation tax. 

In 1889 the rate of merchants’ privilege tax was 
reduced to 20 cents, while the state rate was 45 cents. 
This rate remained unchanged to 1895, when it 
became 15 cents, 10 cents for state and 5 cents for 
school purposes. The rate in 1899 was not changed, 
but was divided equally for state and school purposes. 
The latter is the present rate and method of proration 
for state and school purposes of the merchants’ privi- 

13 Nashv. Daily American, Feb. 21, 1877. 

™ Acts 1881, ch. 171, sec. 20. 


PRIVILEGE AND OCCUPATION TAXATION. 113 


lege tax. 15 This estimate was based upon sworn 
reports made by the merchants or their representatives. 
A fuller consideration of the method employed is 
reserved for the discussion of the statutes and prac¬ 
tices of the present time. 

Auction and commission sales were from the begin¬ 
ning to be taxed ad valorem upon one-third the value 
of all goods sold during the year. This practice of 
taxing auctioneers and commission merchants upon 
their stock of goods has been continued in operation 
to the present. 16 Foot peddlers were taxed upon occu¬ 
pation privilege. 

The merchants’ privilege taxes have been and are 
now collectible by the county court clerk. The pay¬ 
ment of the tax is pre-requisite to renewal of license. 17 

A brief consideration of the statutes in present 
operation will make sufficiently clear the general prac¬ 
tice in regard to assessment and collection of the mer¬ 
chants’ privilege tax, which is not materially different 
from the plan outlined by preceding laws. Merchants, 
which term includes business enterprises engaging in 
the sale of goods, etc., shall pay an ad valorem tax 
upon the goods kept on hand for sale or purchased 
and delivered for profit, or, if a corporation, upon the 
capital stock. The value of such goods shall be esti¬ 
mated by taking an average value of the highest and 
lowest inventory of stock during the year, adding 
thereto the value of fixtures, and similar property. 
A sworn report is required by the county clerk of the 
owner or manager of the firm as to capital stock, and 

is Acts 1907, ch. 602; also 1917, ch. 101. 

16 See any assessment act. 

17 See Collection of Taxes. 


114 


TAXATION IN TENNESSEE. 


other details of the business. In case a firm sells 
certain goods at auction, such firm shall be required 
to pay on one-third the value of such goods, the same 
as a regular auctioneer or commission merchant. In 
case of misrepresentation by the merchant in making 
his report, the county clerk has the authority to sum¬ 
mon the merchant and witnesses in arriving at a cor¬ 
rect value of the property. An annual license is 
required of all such firms and companies, before com¬ 
mencing or continuing in business. 18 Both ad valorem 
and merchants’ privilege taxes are assessed by and paid 
to the county clerk. 

The merchant is required to pay the usual ad 
valorem tax upon the value of his property, and in 
addition thereto a privilege tax of 15 cents on the one 
hundred dollars valuation, 7*4 cents for state and 7 \4 
cents for school purposes. It is also provided that 
no privilege tax shall be less than $5, which, when 
paid, shall be divided equally between the state and 
county. When the stock is valued at less than $800 
the privilege shall be fixed at $7.50. Ex-Confederate 
and Ex-Federal soldiers of the Civil War are exempt 
upon capital not exceeding $250. 

The merchants’ privilege tax rate corresponded to 
the state rate until 1889, when it was changed to 20 
cents on the $100, divided equally for state and county 
purposes, while the general rate for ad valorem 
remained 45 cents, 30 cents of which was for state 
and 15 cents for county purposes. One should remem¬ 
ber in this connection that the merchants’ ad valorem 
tax was the same as other property and remained so 
throughout the history. The concession to the mer- 
Acts 1907, ch. 602. 


PRIVILEGE AND OCCUPATION TAXATION. 115 


chants of a lower rate was made only upon the mer¬ 
chants’ privilege taxes. 

By acts of 1897 the rate was reduced again, this 
time to 15 cents, 7*4 cents for state and 7^4 cents for 
county purposes. This rate for merchants’ privilege 
tax has remained unchanged during the past twenty- 
two years. 

The merchants’ taxes, privilege and ad valorem, 
have afforded a large income to the state since 1876. 
The receipts reached an appreciable amount by 1881. 
The business of the state by that time was fast recov¬ 
ering from the depression caused by the Civil War 
and Reconstruction, as shown by the income that year 
of $66,635. This was a splendid showing, as compared 
with the total receipts of $1,870,224 from all sources. 
For the biennial period of 1880-81 the total receipts 
from this source were over 9 per cent of the total 
revenue. There was a steady increase in receipts until 
1891, when the total amounted to $123,461, from mer¬ 
chants’ taxes, or $238,578 for the biennial period. This, 
however, was only about 6*4 P er cent of the total 
income for the year, excluding loans. 

The period from 1887 to 1891 was very productive 
as to receipts from merchants’ taxes, but after 1891 
there was a steady decline for a series of years. The 
lowest figure was reached in 1897, which was $93,226. 
But the total income for that year was only $1,248,748, 
excluding loans, and these taxes amounted to almost 
714 P er cent of the total income. However, the gen¬ 
eral depression may be accounted for by the financial 
panic of the nineties. Many merchants went into bank¬ 
ruptcy, and besides, the state rate for merchants’ privi- 


116 


TAXATION IN TENNESSEE. 


lege, referred to before, was reduced from 20 cents 
to 15 cents on the $100. 

After the depression above mentioned the receipts 
again showed a gradual and continuous increase to the 
present. However, the increase has not been in pro¬ 
portion to other taxes. For example, in 1905 the 
merchants’ taxes amounted to $130,189, which was 
only about 4 per cent of the total income for that year. 
The year 1918 showed a corresponding decline. 
The receipts were $210,154, which was only about 
3 per cent of the total income for the year. 
The decreasing proportion of receipts from the mer¬ 
chants’ privilege taxes to total revenues of the state 
may be accounted for by the increasing income 
derived from insurance taxes, occupation and business 
license taxes, and other fruitful sources of revenue. 

Some comparisons will show the relative impor¬ 
tance of the merchants’ privilege tax and the mer¬ 
chants’ ad valorem tax. All previous comparisons 
have been in terms of totals. In 1901 the merchants’ 
privilege tax was just half that of ad valorem, 33 per 
cent of the whole of merchants’ taxes, or 41 per cent 
of the whole; in 1910 it was about 90 per cent of 
merchants’ ad valorem taxes. In 1918 the merchants’ 
privilege taxes amounted to about 80 per cent of the 
merchants’ ad valorem, or 44 per cent of the whole 
amount of merchants’ tax receipts. 

These figures show a gradual proportionate decline 
in the relative importance of the merchants’ privilege 
and ad valorem taxes, taking the whole period since 
1870. The figures for the first half of the whole 
period are easily accounted for. The inclination was 
to secure the greater portion of revenue from privilege 


PRIVILEGE AND OCCUPATION TAXATION. 117 


taxes, consequently the rate was very high. The ulti¬ 
mate consequence was a gradual reduction in the 
privilege tax rate. This, together with the develop¬ 
ment of a more efficient system of assessments, has 
caused the merchants’ privilege tax to become com¬ 
paratively less significant. 

One thing is very evident; the practice has grown 
more in the direction of leniency towards double taxa¬ 
tion of merchants. In the first place, under present 
business methods the tax is almost sure to be shifted 
to the purchaser of the goods. The merchant is com¬ 
pelled to make an extra charge over cost in order to 
meet the expense of double taxation. Probably in 
most cases the tax is thus shifted. If this is true, the 
leniency is justifiable, because the burden of taxation 
is shifted to those least able to bear it, namely, the 
ordinary consumer. 

Then, again, by long practice and experience, with 
the usual laxity on the part of the administrators, a 
merchant who so desires may easily evade a large 
portion of the taxes, both as to privilege and ad 
valorem, by failing to make adequate returns. In fact, 
the return is left largely to the owner of the property, 
and under the present system of taxation in Tennes¬ 
see, where practically all the tangible property is 
returned at a small per cent of its real value and 
intangible in many cases not at all, he no doubt feels 
justified in making an inaccurate return. It may be 
put even stronger. The average merchant is forced 
to make inadequate returns in self-defense. In cer¬ 
tain cases if he made adequate returns, it would vir¬ 
tually be confiscatory. In all cases,—that is, provided 
the majority of merchants do return their stock at 


118 


TAXATION IN TENNESSEE. 


less than its actual value,—if he made adequate re¬ 
turns, he would be thrown into a position of unequal 
competition. 

Business License Taxes. 

In most southern states there is an elaborate sys¬ 
tem of business licenses, which largely supplements 
the general property tax. In theory these license taxes 
are levied for the purpose of regulation rather than 
taxation. For the most part, however, these have 
become taxes in reality, as distinguished from mere 
payments for the exercise of small privileges. 19 

Tennessee is no exception to this typically southern 
form of taxation. The tax is not only productive and 
easy of collection, but serves the purpose in many 
instances of regulation. For example, transient mer¬ 
chants must make a deposit of $200 and pay a fee 
of $25 as a state license; in addition, municipal cor¬ 
porations may impose a license tax of not to exceed 
$20 a day for each day they are engaged in carrying 
on their business. 20 The purchase of this license is 
required in advance. Other examples will appear in 
another connection. 

However, the license tax serves not only the pur¬ 
pose of regulation in the sense of prohibiting certain 
forms of business occupation, but it discourages the 
excessive multiplication of small retail shops which 
would operate at a loss and ultimately go into bank¬ 
ruptcy. 21 

The privilege taxes which have been considered in 
connection with certain forms of taxation in Tennes- 

19 Outlines of Economics, Ely, p. 733. 

20 Federal Report of Taxation and Revenue Systems. 

21 Outlines of Econ., Ely. 


PRIVILEGE AND OCCUPATION TAXATION. 119 


see, such as quasi-public corporations, merchants, etc., 
have been designed to secure more just and equitable 
taxation for such properties as were not easily taxed 
ad valorem , and these properties should not be consid¬ 
ered as closely connected with the privilege tax upon 
“occupation, vocation, and business.” The principle 
is the same in so far as the tax is upon privilege, but 
different with respect to the levy of a privilege tax 
upon a business because no adequate provision had 
been made for equitable assessment of ad valorem 
taxes. Examples of the latter are railroad and tele¬ 
graph companies during the early seventies, and even 
later, in case the charter exempted the corporation 
from taxation. Then, too, the privilege tax has 
served the purpose of providing a substitute for the 
classification of property for taxation, which the con¬ 
stitution failed to provide. 22 That is to say, the in¬ 
elasticity of the provisions for taxation in the consti¬ 
tution, which provide that all property, real, personal 
and mixed, shall be taxed equally according to value, 
practically compelled the state to resort to privilege 
taxes in its effort to more nearly equalize the burden 
of taxation. The substitute has not always been ef¬ 
fective as taking the place of classification of property 
for taxation, but doubtless in many cases it has been 
helpful. 

To trace the development of the taxation of occu¬ 
pations and businesses, as to the inclusion or exclusion 
of certain ones in the history of its development, 
including the various and changing rates from 
time to time, would be irrelevant to the pur- 

22 See provisions for taxation under the Constitution, 
Ch. I. 


120 


TAXATION IN TENNESSEE. 


pose in hand and uninteresting to the reader. It 
is sufficient here to make only a brief comparison of a 
few of such lists at representative periods. Such a 
comparison, although incomplete, will at least afford 
some idea of the historical development of this form 
of taxation under the present constitution. 

The privilege list of 1883 practically combines the 
various special acts previously passed for taxing the 
numerous occupations and businesses. Up to this 
time the legislatures had not happily struck upon the 
plan of grouping privileges of this kind. In the early 
acts many unusual items appeared in the privilege tax 
lists, among them a tax on traveling salesmen, pig iron, 
etc. The legislators may be excused, however, in their 
ardor to include as many sources of taxation as pos¬ 
sible, because of the pressing financial need of the 
time. 

The act referred to above included some sixty dif¬ 
ferent classifications of occupations and businesses. 
Acts of 1891 carried all those of 1883, with only two 
or three minor exceptions, but also added about twenty 
new and important classes. 

Acts of 1917 contain practically all the items ap¬ 
pearing in the acts of 1891, except a few obsolete 
omissions, and besides, as many again new ones had 
been added by that time. These include a great num¬ 
ber of new kinds of business enterprises which had 
come into use after 1891, such as garages, other auto¬ 
mobile concerns, theaters (Movies), various amuse¬ 
ments—in fact, everything conceivable from the manu¬ 
facture of patent medicines at $1,000 a year to junk 
dealers at $25. Reference to any recent revenue law 
will show the nature and extent of occupations and 


PRIVILEGE AND OCCUPATION TAXATION. 121 


businesses taxed upon privileges in the state, and by 
far the larger number has been added since 1883. 

A comparison of rates of one act with another re¬ 
veals the tendency for the rates to become higher upon 
the same kinds of business from 1883 to 1891, and the 
general tendency toward reduction from 1891 to 1917, 
with the exception of those enterprises that the state 
was trying either to regulate or tax out of existence 
by excessive taxes. That is to say, the rate levied by 
the state upon occupation privileges advanced during 
the first twenty years under the present constitution, 
reaching its maximum in the early nineties. Since 
that time the charge upon such privileges has shown 
a gradual decline. This may be explained in three 
ways: first, the former period was characterized by the 
taxation of privileges, as pointed out in connection 
with corporation taxation; 23 second, during the latter 
period the legislators had come to see that a minimum 
rate produced a larger income than otherwise; and 
third, the desirability of encouraging certain forms of 
business enterprises was recognized. 

The fact is that the taxation of certain occupations 
and businesses in the state by requiring an annual 
license tax has taken the form, from the beginning, of 
a general but crude method of regulation. Certain 
kinds of establishments the tax renders prohibitive, for 
example, variety theaters and wild west shows, which 
are required to pay $200 per annum at each location. 
A better example still is that of turnpike companies, 
which, if they increase their rate beyond that fixed by 
statute, shall pay $250 for each gate. 24 Another ex- 

23 See Corporations. 

24 See Turnpikes. 


122 


TAXATION IN TENNESSEE. 


ample, which illustrates the state’s effort at protec¬ 
tion by means of the privilege license tax, is that of 
emigrant agents, each of whom is required to pay $500 
a year. However, as pointed out above, in most cases 
such a rate is adopted as the business will stand, so as 
to obtain a maximum revenue. 

Business privilege taxes paid directly to the Comp¬ 
troller, other than public-service corporations and com¬ 
panies, and other corporations and companies having 
special consideration elsewhere in this discussion, in¬ 
clude storage and warehouse companies, which pay two 
and one-half per cent on gross premium receipts, trad¬ 
ing stamp companies, which pay $500 in each county, 
and merchants issuing stamps, $250. Practically all 
other such taxes are paid to the county court clerk, ex¬ 
cept litigation fees. 25 This plan has prevailed since 
1873, when the office of privilege tax collector was 
abolished and the duties thereof were transferred to 
the county court clerk. 26 In the case of litigations the 
privilege tax or fee is collected not only by the county 
clerk, but also by the clerk of the circuit court, the 
chancery court, the criminal court, and the Supreme 
Court. 

There is a penalty of 1 per cent a day for non¬ 
payment of privilege taxes, and to exercise any priv¬ 
ilege without first paying the tax is a misdemeanor for 
which the fine is $10 to $50. 27 

25 Federal Report. 

2 6 Acts 1873, ch. 118. 

27 Note: Litigation fees and turnpike taxation, both of 
which appear in the general revenue bill, are discussed more 
fully under Fees and Special Forms of Taxation, respectively. 
The merchants’ privilege tax is treated in connection with 
Merchants’ Taxation. 


PRIVILEGE AND OCCUPATION TAXATION. 123 


A comparison of receipts of occupation and priv¬ 
ilege taxes, exclusive of merchants’ taxes and inclusive 
of litigation fees collected by the county court clerks, 
will reveal the importance of this form of taxation 
and also show its comparative development since 1900. 

In 1901, the total privilege taxes collected from 
this source amounted to $305,741; in 1910, they were 
$281,084; and in 1918, $373,729. The reduction for 
the ten years, from 1901 to 1910, may be explained by 
the decline in the liquor business. The increase since 
1910 is due to the varied forms of new and profitable 
business enterprises operating in the state since that 
time, such as automobile companies, etc. The fact 
that the receipts in 1918 are still but little more than 
those of 1901 is due of course to the practical extinc¬ 
tion of the liquor traffic in the state. 28 

Fees. 

A fee has been defined as “a compulsory contribu¬ 
tion of wealth made by a person, natural or corporate, 
under the authority of the public powers, to defray a 
part or all of the expenses involved in some action of 
the government, which, while creating a common bene¬ 
fit, also confers a special benefit, or one that is arbi¬ 
trarily so regarded.” 29 More concisely stated, fees are 
a compensation allowed by law for specific service by 
an officer, which is not due until the service is ren¬ 
dered. 30 A fee is not supposed to exceed the cost of 
the special service rendered, and the state is supposed 

28 Note: Recent changes in business license taxes will be 
discussed in connection with Recent Reforms in Taxation. 

29 Plehn, Introduction to Public Finance, p. 68. 

30 Ency. Digest of Tenn. Reports, Vol. 6. 


124 


TAXATION IN TENNESSEE. 


to pay part or all the cost. The proportion of public 
interest the state has in performing the service deter¬ 
mines what part of the cost the state pays. 31 

The wealth of the state or its ability to raise funds 
easily usually determines the relative use of fees by 
a government. The less wealth a state has the greater 
is the use of the fee system. As a state becomes 
wealthier the amount of fees charged for public serv¬ 
ice is correspondingly reduced. However, the fee sys¬ 
tem sometimes becomes so strongly embedded in a 
taxing system that little change in the rates is per¬ 
ceptible for a limited number of years. Tennessee is 
a fair example of the latter. 

Therefore it may be said that the financial system 
of Tennessee is characterized by the fee system, so 
common to the southern states. While it could scarce¬ 
ly be said that an appreciable income is derived from 
fees, which is of course as it should be, yet many de¬ 
partments of the government are maintained wholly or 
in part from the collection of fees. As a general prop¬ 
osition, in Tennessee the purpose of collecting fees has 
been for maintenance, and the system is extensively, 
in fact, in most cases exclusively, used for local and 
special purposes. The only county in the state that 
does not maintain practically all county offices in that 
way, in so far as the offices lend themselves to the col¬ 
lection of fees, is Shelby, which operates otherwise un¬ 
der a special act of the Legislature. 

But economy of space limits our discussion of the 
fee system primarily to its operation in the state as a 
whole and in connection with state offices. The cor- 


31 Ibid. 


PRIVILEGE AND OCCUPATION TAXATION. 125 


poration charter tax is also considered here in connec¬ 
tion with fees because of its close resemblance to such 
charges, and because the charter tax is collected by 
the Department of Secretary of State. 

The departments of Comptroller of the Treasury, 
of the Treasury, and of State, were largely maintained 
and operated up to 1893 under the fee system, the 
small salaries paid being supplemented by fees. The 
State Treasurer received the insurance fees. The fees 
received by the Comptroller consisted of a small per 
cent of taxes collected from railroad companies and 
other corporations who paid taxes directly to that de¬ 
partment. The Secretary of State got fees from filing 
of charters and from filing and recording annual re¬ 
ports of corporations. Since 1893 these departments 
have been largely on the salary basis. At present 
the various fees are charged and collected in the Sec¬ 
retary of State’s office, but the total revenue derived 
therefrom is turned over to the treasury. Much more 
money is collected by that office than is necessary for 
its operation. 

There are three general classifications of income 
secured by the department of Secretary of State; 
namely, recording fees, filing fees, and the corpora¬ 
tion charter taxes. Under recording fees are tran¬ 
sient merchants’ licenses, consolidations and agree¬ 
ments, the Department of State receiving for each $25; 
others are commissions, trade marks, and requisitions, 
for each $3 to $5, and charity license $1. Recordation 
fee for domestic corporations is $10 each, and for for¬ 
eign corporations $20 and $10, respectively, for char¬ 
ters and amendments. 32 Numerous commissions are 

32 Acts 1909, ch. 504. Acts 1899, ch. 2. 


126 


TAXATION IN TENNESSEE. 


recorded without charge, such as magistrates' com¬ 
missions, Governor’s commissions in part, etc. 

Charters of general welfare corporations and char¬ 
ters for purely religious and educational organizations 
are issued for a fee of $3 each. Other corporations 
pay $25 as a recording fee. For certificates and seals 
the department receives $2 each. In the “Blue Sky” 
department the rates are as follows: company qualifi¬ 
cation fees, $25; agents’ license, $10; and semi-annual 
reports, $5. 33 The annual corporation filing fee ranges 
from $5 on $25,000 capital to $150 for $1,000,000. 34 

There are about 6,000 corporations doing business 
in Tennessee, some 800 of which are domestic. In ad¬ 
dition to the filing fees referred to above the foreign 
corporations are required to pay a domestication fee 
ranging from $50 on $50,000 capital stock to $1,500 on 
$5,000,000 or over, which fee is payable on occasion of 
filing the charter upon entrance into the state for the 
purpose of doing business. 

The annual corporation filing fees netted the state 
in 1917-18 $224,104. Corporations filing charters in 
the state for the same biennial period paid $85,402. 
Income to the department of Secretary of State from 
miscellaneous items, consisting of foreign corporation 
tax, charity licenses, merchants’ licenses, etc., amount¬ 
ed to $211,385 for the preceding biennial period. 

The department of Secretary of State takes care 
of practically all the fee business done by the state, but 
some fees for certain departments are paid directly to 
the Comptroller. Such fees are supposed practically 

33 Acts 1913, ch. 31. 

34 Acts 1907, ch. 134. 


PRIVILEGE AND OCCUPATION TAXATION. 127 


to support the department from which they come. For 
example, the Game and Fish department expense for 
1917-18 was $24,365 and receipts, $32,828, which 
amount shows a substantial profit to the state. The 
Department of Pure Food was practically self-support¬ 
ing from fees, but the department of Office and Mines 
fell behind by 40 per cent, thereby costing the State 
about $13,000 for the last biennial period. 

Litigation Fees. A discussion of the fee system 
in Tennessee is too complicated for full consideration 
in connection with a brief history of taxation; however, 
a few observations in connection with court litigations 
will at least make clear the extent and possibilities of 
this form of taxation. 

Of course the purpose, theoretically, of litigation 
fees is for the maintenance of certain offices in connec¬ 
tion with the courts, and the system has been retained, 
in so far as the fees have applied to the payment for 
services rendered by the officers, in order that it might 
serve as an incentive to vigilance and activity on the 
part of those receiving benefits therefrom. 

However, the high court costs have been assigned 
to this method of compensating public officers. If this 
is true, the benefit derived from the collection of fees 
is of more than doubtful importance. If litigation fees 
increase litigation, which is probably the case, the vigi¬ 
lance and activity resuiting from the system is over¬ 
balanced by the injustice or lack of justice that is de¬ 
rived from the collection of such fees, because in most 
cases such collections only serve to swell the purses of 
individual officials. The purpose of many suits at law 
was undoubtedly not that of obtaining fair administra¬ 
tion of law and justice, but of perverting it. The 


128 


TAXATION IN TENNESSEE. 


remedy lies in the complete abolition of the fee system 
by putting all officials on a salary basis, or a partial 
abolition which would prevent the operation of the 
fee principle of compensation beyond a certain sum. 

The rates adopted by acts of 1917 applying to liti¬ 
gations show from one-third to one-half increase over 
those of 1883 and 1891. 35 

Receipts from the privilege tax upon litigation paid 
to the county court clerks are relatively unimportant; 
for example, in 1917 the amount collected and turned 
over to the State was $799, and in 1918, $723. But 
such income returned by chancery court clerks amount¬ 
ed to $16,206 and $16,579, respectively, for the years 
1917-18. Fees collected and returned from criminal 
courts were $4,776 and $7,987, respectively, for the 
two years; from the Supreme Court were returned $7,- 
277 and $6,331. The total for the last biennial period 
amounts to $60,683. Similar figures can not be con¬ 
veniently obtained for circuit court clerks, because the 
report of their collections is made in connection with 
attorneys’ fees. 

A law was enacted in 1917 to limit the salary of any 
official to $4,500, who is operating under the fee sys¬ 
tem, but it was held unconstitutional. 

From this brief treatment of fees, licenses, and 
charter taxes some idea may be drawn as to the scope 
and inclusiveness of the system, and of its importance 
to the state as an immediate source of revenue. No 
special consideration is made here as to the fee sys¬ 
tem applied locally, although this is in reality the most 
important characteristic of the fee system at the pres¬ 
ent time. 

35 Acts 1917, ch. 101. 


CHAPTER V. 

SPECIAL FORMS OF TAXATION. 

Insurance. 

Because of the nature of the insurance business 
taxation of insurance companies and corporations was 
for many years upon a privilege basis. Upon this 
subject, as in the case of railroads and other corpora¬ 
tions, the constitution said nothing in a special way. 
It was evidently intended that these companies should 
be taxed in the same manner as other corporations. 

The office of Insurance Commissioner was created 
in 1873, and by virtue of the provisions of the act, 
the State Treasurer was made ex officio Insurance 
Commissioner. His duty was to require reports of 
these companies, to receive the taxes paid by them, 
and to issue an annual detailed report upon the extent 
and character of the insurance business in the state. 

In 1871 the Legislature began the taxation of this 
form of business by levying a privilege tax upon the 
agents, intending it is supposed to tax the companies 
indirectly through the agents. This was a privilege 
tax, and as such it appears in the Comptroller’s report 
at the present time. The rate upon insurance agents 
was $25 for the state and $10 for each county in 
which business was solicited. Certain minor fees 
were also charged to companies for filing their annual 
statements. 1 

This method of taxing insurance companies con¬ 
tinued in force until 1887. A law was enacted at that 


1 See Fees. 


130 


TAXATION IN TENNESSEE. 


date providing for the taxation of premiums paid to 
these companies in the process of business transactions. 
The rate was fixed at 2per cent of all gross pre¬ 
miums of foreign companies, both fire and life. 
Domestic companies were required to pay only l 1 /^ 
per cent. This is sometimes called an “insurance ad 
valorem tax” Although rates and fees have changed 
from time to time, this general plan of taxing insur¬ 
ance companies has continued in operation to the 
present. 2 A more complete statement of the plan is 
reserved for the discussion of the present practice. 

In 1889 the tax rate on premiums was continued 
without change, but the acts of that date provided that 
the Insurance Commissioner should receive 1^2 P er 
cent of all funds collected from insurance taxation. 
The reason for this is evident in the fact that since 
the Insurance Commissioner and State Treasurer 
were one and the same, this compensation was added 
because of the additional responsibilities incurred by 
one person holding two offices. The restriction was 
also supplied in the act that no attorney or other col¬ 
lector should be allowed this commission for the col¬ 
lection of insurance taxes. 3 

The insurance business had grown to such an 
extent that a more complete act was passed in 1895 
which was designed to include the various forms of 
insurance business and taxation. Foreign life insur¬ 
ance companies, accident companies, and other foreign 
insurance companies, except assessment and co- 

2 Acts 1887, ch. 1. 

3 Acts of 1889, ch. 130. 

Note: As to taxation of capital stock of corporations 
chartered outside the state, see Corporation Taxation. 


SPECIAL FORMS OF TAXATION. 


131 


operative associations, were taxed at the same rate, 
namely, 2*4 per cent of all gross premiums. The tax 
for co-operative associations, except fraternal socie¬ 
ties, was fixed at $200 per annum. Foreign fire and 
marine insurance companies paid 2*4 per cent of gross 
premiums, and domestic fire, and life insurance com¬ 
panies, other than mutual, paid l 1 /^ per cent of gross 
premiums. Home mutual, and fire insurance com¬ 
panies paid $150 per annum, provided they carried 
their business beyond the county wherein they were 
organized. If a company belonging to the latter class 
confined its operations to the county of its organiza¬ 
tion, only fees were required. The fees were $18 to 
the Secretary of State, $15 to the Secretary of the 
Treasury, and $10 for filing the annual statement. 
Guarantee companies and associations were required 
to pay to the Comptroller $200 annually; and if such 
companies were not organized and chartered within 
the state, they should pay an additional amount of 2*4 
per cent on gross premium receipts. 4 

The intention of the legislators to discriminate 
against foreign companies in favor of domestic com¬ 
panies was in evidence in the act outlined above, while 
it was not entirely neglected in the previous acts. 
However, the lawmakers probably meant to compen¬ 
sate, at least outwardly, foreign companies by passing 
an act the same year declaring that the capital stock 
of foreign corporations organized outside the state 
would not be required to pay taxes upon the capital 
stock registered outside. This act was based upon the 
belief that many companies had withdrawn from the 
state and others had not entered because of the im¬ 
pression that they would be taxed upon capital outside 

4 Acts of 1895, ch. 4. 


132 


TAXATION IN TENNESSEE. 


the state, which possibility also existed under more 
recent acts. Other reasons for the state discriminating 
against foreign companies will be given below. 

Under the acts of 1897 delinquent taxes of insur¬ 
ance agents became collectible by the county clerk. 
This served the purpose of relieving the Insurance 
Commissioner from the duty of investigating delin¬ 
quencies and litigation which resulted from attempts 
at collection. This provision of the law is still opera¬ 
tive at the present time, but it is ineffective and un¬ 
necessary now because no license for doing business 
is granted under present practices until the tax is paid. 

In 1899 domestic companies were put upon the 
same footing relative to ad valorem taxation as foreign 
companies, both being required to pay a tax of 2*4 
per cent on gross premiums. This rate continued for 
both foreign and state companies until 1903, when 
the rate was entirely removed from operation in the 
case of domestic companies. Since 1903 there has 
been no ad valorem premium tax on domestic com¬ 
panies. 5 However, the discrimination shown by the 
removal of this tax from domestic companies is largely 
reciprocated. That is to say, foreign companies are in 
the state of their organization all similarly untaxed. 
Consequently to tax foreign and domestic insurance 
companies in the same manner in Tennessee would 
result in a discrimination against domestic companies 
and in favor of companies from other states. More¬ 
over, foreign insurance companies can afford to 
operate in Tennessee, although they pay unequal taxes, 
because any additional business secured outside their 
state of organization gives that much additional profit. 

5 Acts of 1899 and 1901. 


SPECIAL FORMS OF TAXATION. 


133 


The rate charged for filing charters in 1899 was 
$20 for each charter, $10 for each amendment, and 
$25 for filing articles of consolidation. These fees 
applied to corporations in general, but are mentioned 
in this connection to emphasize the already high rate 
of taxation for these companies. 6 

In the revenue act of 1897, re-enacted in 1899, a 
clause provided that life insurance companies ceasing 
to do business in the state should continue to pay the 
tax of 21/4 per cent on gross premiums that they 
might collect from business which they had already 
secured. However, it was provided that companies 
which had withdrawn from the state previous to the 
passage of these acts should be exempt from such tax. 7 
The Legislature of 1901 tried to remedy the discrimi¬ 
nation caused by the last condition mentioned by the 
passage of an act which would include such premiums. 
The act provides that companies having withdrawn 
from the state shall continue to pay upon business 
previously contracted and still in force in the state. 8 
The act is ineffective because companies withdrawing 
from the state usually sell their interests to a company 
legally qualified to continue business operations in the 
state. 

In acts of 1903 no mention was made of taxing 
domestic insurance companies on gross premiums, as 
was shown above, except domestic fire insurance com¬ 
panies operating outside the county where they are 
organized and chartered. If the companies last men¬ 
tioned extend their business operations to another 

6 Acts of 1889, chs. 2 and 209. 

7 State v. Insurance Company, 22 Pickle, 282. 

s Acts of 1901, ch. 128. 


134 


TAXATION IN TENNESSEE. 


county or counties, they shall then pay an annual tax 
of $300. 9 Evidently this act practically prohibited 
small corporations and companies from extending 
their business operations, and consequently it was 
repealed in 1907. No tax is now charged these com¬ 
panies for extending their activities to adjoining coun¬ 
ties. 10 

During the history of insurance taxation under 
the present constitution insurance companies and their 
agents have been required to pay certain fees and 
licenses. These fees and extra charges have changed 
with various acts of the Legislature. Under the 
present system there are three divisions or sources of 
income from insurance taxes —ad valorem tax on gross 
premiums of 2\fe per cent, agents’ privilege tax of 
$10 per annum, and a $2 fee from each agent given 
in payment to the Insurance Department for certificate 
of authority. 

Previous to 1909 one-fifth of one per cent, known 
as the fire marshal tax, was collected. At present the 
fire marshal tax is one-half of one per cent. The 
annual filing fee is $15 for casualty companies, and 
$25 for legal reserve companies. Only a filing fee 
is paid by fraternal companies. 

Instead of the graduated scale for corporation 
taxes paid upon entrance into the state, the acts of 
1917 provided 11 that all insurance companies and 
associations transacting the business of insurance, 
except fraternal insurance companies, shall pay $100 

9 Amended act of 1895. 

Acts 1907, ch. 463. 

11 Ch. 66. See Corporation Taxation; also Fees. 


SPECIAL FORMS OF TAXATION. 


135 


to the Secretary of State before commencing the 
operation of business within the state. 

In 1913 the office of Insurance Commissioner was 
divorced from that of State Treasurer in order to pro¬ 
vide more direct and expert supervision than the 
department received or could receive in connection 
with another equally important office. The fact is 
that since the insurance business has been under a 
separate commission, there has been a much closer 
collection of insurance taxes in the state, particularly 
of privilege license taxes. Certain fire, and marine 
insurance companies have been forced recently to pay 
their taxes, which have been delinquent as long as 
sixteen years. These facts furnish evidence of the 
wisdom of maintaining a separate department for in¬ 
surance. 

The receipts from insurance taxes have shown a 
steady increase from year to year. In 1896 the bien¬ 
nial report showed the income from insurance pre¬ 
mium taxes to be $190,704, the agents’ privilege, 
$15,090, and fees $10,235. The income from insur¬ 
ance premium taxes has shown an annual increase of 
about $50,000, reaching the high watermark of over 
$900,000 for the biennial period of 1917-18. The 
agents’ privilege insurance tax for the same length 
of time amounted to about $70,000. The figures for 
the amount of fees collected are not available, but 
they, too, judging by previous reports, have increased 
correspondingly. However, a consideration of the 
latter is relatively unimportant in this connection. 

All expenses for maintaining the Insurance De¬ 
partment are met by the collection of fees. Thus it 
is apparent that this department secures a large net 


136 


TAXATION IN TENNESSEE. 


income for the state, in fact practically 10 per cent 
of the total revenue, excepting loans. 

Inheritance Tax. 

The constitutional basis of the inheritance tax law 
in Tennessee is that of a privilege. The first statute 
upon the subject of inheritance and succession tax 
was enacted in 1891. 12 It was expressly repealed by 
acts of 1893, 13 and certainly by implication by the 
general provisions of the last named act. It provided 
for a tax of $5 on every $100 upon all property owned 
by residents or non-residents passing by inheritance 
to any one not in direct line of descent, either ascend¬ 
ing or descending. 

The second statute upon the subject was enacted 
in 1893, which act, with its amendments has been 
operative until the passage of a general inheritance 
tax law in 1919. 14 This act made no mention of 
exemption of brothers and sisters, and it limited the 
children subject to the inheritance tax exemption to 
those born in lawful wedlock. Another act, however, 
passed at a later hour the same day specifically ex¬ 
empted brothers and sisters, and suspended by impli¬ 
cation this feature of the preceding act. 15 But by the 
general act of 1895, 16 repealing by implication the 
act of 1893 as a whole, including the clause which 
exempted brothers and sisters, 17 the original act of 

12 Acts 1891, Extra sess., ch. 25, sec. 6. 

13 Ch. 174, sec. 25. 

14 Acts 1893, ch. 174. See Recent Reforms in Taxation. 

15 Ch. 89, sec. 7. 

18 Extra sess., ch. 4. 

17 Ch. 89. 


SPECIAL FORMS OF TAXATION. 


137 


1893 was revived and made operative by removal of 
the suspension. 18 

The Court also held in the above case that the 
Legislature has the constitutional power to impose 
a privilege tax upon the right of succession. 19 Thus 
the power of the state to tax collateral inheritances 
was established. Acts of 1899, 1901, 1903, and 1907 
re-enacted the inheritance tax law by declaring that 
“there shall be levied and collected a collateral inheri¬ 
tance tax, as provided for in acts 1893, ch. 174, and 
acts amendatory thereof.” 20 These laws made the 
act of 1893, Chapter 174, operative as originally 
enacted. 

An effort was made in 1903 to secure the exemp¬ 
tion of charitable, scientific, religious, literary, and 
educational institutions from the operation of the 
collateral inheritance and succession tax, 21 but the act 
so purporting was held unconstitutional upon the 
ground, first, of technical and faulty wording of the 
caption of the act, and second, that it was confined to 
certain institutions which means corporations, “while 
property held and used for the same purpose by per¬ 
sons acting as trustees is not exempted.” 22 

A brief summary will indicate the general char¬ 
acteristics of the act of 1893, which is here given 
according to its wording and interpretation by the 

18 Zickler v. Bank, 20 Pickle, 277. 

19 State v. Alston, 10 Pickle, 15. 

20 Acts 1899, ch. 432. Acts 1901, ch. 128. Acts 1903, ch. 
257. Acts 1907, ch. 541. 

21 Acts 1903, ch. 561. 

22 Daly v. State, 13 Lea, 228. Nashville v. Ward, 16 Lea, 
27. Speed, clerk, v. Dillard, exc. Jackson, April, 1904. See 
Recent Reforms in Taxation. 


138 


TAXATION IN TENNESSEE. 


courts. United States bonds are not exempt, and the 
proceeds from a life insurance policy, passing to a 
brother or sister, is subject to the tax. 23 Where a 
testator administers, the excess, after his compensation 
is allowed, is taxable. The property is not taxable 
until after the beneficiary has come into possession of 
it, however, it is assessed upon the value at the time 
the right of possession accrues. 24 In case the owner 
desires to pay the tax prior to his coming into pos¬ 
session, he may do so, and deduct from the value of 
the estate at the time of payment, after subtracting the 
value of the life estate or estates for years. 25 

The act further provides that the tax shall be and 
remain a lien on the real estate, the lien to last five 
years, awaiting the filing of suit, but bond is required 
if the property is personalty. Discount of 5 per cent 
is allowed for early payment of the tax, and if the 
tax is not paid within one year after it becomes due, 
interest is to be charged. 26 

The act also recites the duties of the executors 
and administrators as to procedure when inheritance 
taxes are due. In case of conditional estates, where 
the legacy is to be given for a term of years, if money, 
the tax shall be retained on the whole amount; but 
if not money, apportionment may be made if the case 
requires it. The tax is not required to be paid on the 
remainder estate until it comes into possession of the 
remainder men, unless the estate depends upon a con¬ 
dition or contingency. In that case the tax must be 

23 Opinion of Assistant Attorney General Faw. 

24 McKinnon v. McFall, 19 Cates. 

25 Sec. 3a. See Carlisle Tables. 

26 McKinnon v. McFall, 19 Cates. 


SPECIAL FORMS OF TAXATION. 


139 


paid without waiting for the condition or contingency 
to happen. 27 The legacy is payable out of the real 
estate. The administrators must give information to 
the county clerk after the beginning of the execution 
of their duties. The tax is due and payable before 
the transfer is made. After the distribution of legacies 
or shares have been made, if debts are proven against 
the estate, the corresponding tax shall be refunded. 

The appraiser is appointed by the county clerk. 
It is his duty to make a fair appraisement, and he is 
allowed two dollars per day and traveling expenses 
while performing his duty. The appraiser shall fix 
and assess the cash value of all annuities and life 
estates growing out of same, computations of such 
annuities to be made from the Carlisle Life Tables. 
The county court shall determine valuation in case 
of exception. 28 

Monthly reports are to be made to the Comptroller 
of the Treasury by the county clerk. The collection 
may be enforced by the clerk, and the clerk may bid 
in and pay the cost; but upon good and sufficient rea¬ 
son, the clerk may postpone suit for collection. 29 This 
clause was amended in 1917, so that the duty of 
enforcement now falls on the Comptroller. Clerks of 
county courts are made state agents by law for the 
collection of the inheritance tax, and they may retain 
a fee of 5 per cent of such taxes collected and 
accounted for. Attorneys' fees, by the act, are to be 
levied by the court, as costs against the defendant, 
if he is liable. 

27 Baily v. Drane, 12 Pickle, 16. 

28 McKinnon v. McFall, 19 Cates. 

29 McKinnon v. McFall, 19 Cates. 


140 


TAXATION IN TENNESSEE. 


In 1909 a direct inheritance tax law was enacted, 
which provides “that all inheritances of $5,000 and 
over, but less than $20,000 shall pay a tax of 1 per 
cent of their value.” And all inheritances of $20,000 
and over shall pay a tax of one and one-fourth per 
cent of the value, to be collected by the county clerk 
of each county. 

This act was intended by the legislators and held 
by the court to be a supplement of the general col¬ 
lateral inheritance tax law of 1893 and subject to the 
two general methods of collection,— namely, “one, 
by notice to the parties in interest, requiring them to 
appear before the county court and show cause why 
the tax should not be paid; and the other, by filing a 
bill in that court to enforce its collection by the county 
court clerk, to be proceeded with after the manner of 
chancery suits.” 30 

The situs of intangible property is not always 
where the decedent resided before his death, as defined 
in connection with inheritance tax law. The assess¬ 
ment law 31 provides for the assessment of property 
held by executors and administrators in the county 
where decedent resided when he died ; but if he lived 
in another state, then where the personal representa¬ 
tive resides. In the same act, 32 classifying personalty 
for taxation, the power to tax in this state is withheld 
as to such intangible personalty of a decedent as is 
held outside the state’s territory, and subject to taxa- 

30 Opinion of the Supreme Court, W. W. Knox, clerk, 
vs. Lillie Williams Emerson and her husband, J. L. Emerson, 
1910. 

31 Acts 1907, ch. 602, sec. 5, subsec. 2. 

32 Sec. 8, subsec. 10. 


SPECIAL FORMS OF TAXATION. 


141 


tion in the other state where located. Bank stock 
held in his state of a bank in another state is not tax¬ 
able. 33 

Amounts may be deducted from legacies by admin¬ 
istrators for taxes, but all such sums retained shall 
be paid in promptly to the county clerk. The court 
held that the tax is due at the death of the decedent, 
and although the clerk may wait in proceeding with 
collection, he is not bound to do so. 34 

The receipts of revenue from the inheritance tax, 
both from direct and collateral inheritances, have been 
generally gratifying. In 1901 the Comptroller of the 
Treasury pronounced the tax not only promising but 
popular as a means of raising revenue. The county 
clerks had been diligent, according to his belief, in its 
collection, and the Supreme Court upheld the law in 
practically every case. 35 

In 1901-02 the income from inheritances was 
$71,377, and in 1903-04, $112,014. “When it is remem¬ 
bered that the taxes collected from this source are 
largely on property which has heretofore escaped tax¬ 
ation, the justice of such a law is at once apparent.” 36 
In 1905-06 the receipts dropped to $68,619, but 
increased the next biennial period $96,062. The large 
amounts in the preceding years probably were due to 
the conclusion of various litigations or suspensions 
of collection, which were awaiting the Supreme Court 
decisions, testing the validity of the act. 

The direct inheritance act had also become opera- 

33 See assessment of General Property Tax. 

34 McKinnon v. McFall, 19 Cates. 

35 Comptroller’s Report, 1901-02. 

36 Comptroller’s Report, 1903-04. 


142 


TAXATION IN TENNESSEE. 


tive by 1909-10, and from that source during the two 
years $6,452 were collected. It was predicted by the 
Comptroller of the Treasury in his biennial report at 
that time that “from direct inheritances much more 
revenue will be derived than from collateral inheri¬ 
tances,” which prediction has evidently come true; 
for the income from this source reached $299,487 in 
1911-12, and $409,165 in 1913-14. 

The General Assembly of 1915 changed the amount 
of inheritances operative under the direct inheritance 
tax clause to a minimum of $10,000. For this reason 
the revenue from inheritances fell to $281,957 in 
1915-16. Moreover, in the same year an act had 
passed “exempting from inheritance or like tax all 
property passing after the death of the owner by will 
or otherwise to corporations or persons for purposes 
purely religious or charitable.” 37 

In his biennial report of 1915-16 the Comptroller 
of the Treasury recommended “such additional legis¬ 
lation as may be necessary to make clerks responsible 
for their negligence in collecting and reporting the 
inheritance tax, and that the law be so amended that 
after one year the tax shall become delinquent.” 38 
Following this in 1917 the Legislature amended the 
law so that if the deceased has been dead over twelve 
months, the settlement and collection of this tax is 
made the duty of the Comptroller of the Treasury and 
is due and payable at the end of one year. By con¬ 
sequence the Comptroller urged the county clerks to 
report promptly, and with the collection of delinquent 
taxes removed from the local authorities, the period 

37 Acts 1915, ch. 83. 

38 Comptroller’s Biennial Report, 1915-16. 


SPECIAL FORMS OF TAXATION. 


143 


of 1917-18 showed a considerable increase, the receipts 
at the time amounting to $477,044. This amount was 
almost four per cent of the total receipts for the 
period, excepting emergency loans. 39 

The inheritance tax laws received a wholesale 
revision in the biennial session of the Legislature of 
1919. This will be considered in connection with the 
other recent reforms in taxation. 

Other Special Forms. 

Building and Loan Associations. The first annual 
report of the Building and Loan Association, 1895, 
showed 83 companies, both foreign and domestic, with 
total assets of over $13,000,000, operating in the state. 
In 1898, the number of companies had been reduced 
to 37, with total assets of $6,406,924. This number 
was gradually decreased until a minimum of 13 com¬ 
panies was reached in 1913. Total assets were corre¬ 
spondingly decreased at this date to $2,956,733. All 
foreign companies had withdrawn from the state by 
1904. 

The cause of this reduction of business by building 
and loan associations, particularly in the early period 
(1898), has been assigned to the plan of business in 
use. The fault was that the companies had been 
operating on a gross premium basis, and distributing 
all the premium retained during the year instead of 
distributing the premium actually earned for that par¬ 
ticular year. The result was that many of the com¬ 
panies were compelled to go into voluntary liquidation 
and consequently out of business. It is also to be 
inferred that competition of banks, and other loaning 

89 Comptroller’s Biennial Report, 1917-18. 


144 


TAXATION IN TENNESSEE. 


companies have played a part in eliminating some of 
these companies. 

The business of the building and loan associations 
is now conducted principally upon the monthly pre¬ 
mium payment plan, which has proven much more 
satisfactory than the gross premium plan. 

The explanation above will indicate the cause for 
the reduction in tax receipts from this source since 
1898. It has never been a productive source of reve¬ 
nue for the state by the very nature of the case. The 
operating and taxable capital of these companies is 
loaned and re-invested in real estate, which in turn 
is assessed for taxes as realty. Consequently these 
companies are assessed for taxes as a privilege, at a 
special rate upon their capital paid in. This rate is 
comparatively small, ranging from $20 on capital less 
than $10,000 to $843.50 on capital between $450,000 
to $500,000. In addition to the taxes imposed, each 
association is required to pay a fee of $10 to the State 
Treasurer for filing its annual report. 

Because of the reduction of the loan business in 
the state from 1898, the receipts from this source have 
dropped from over $16,000 to about $7,000 annually 
for the last few years. 

Transfer of Realty. The Legislature of 1893, in 
the general revenue act of that year, provided “That 
on all transfers of realty there shall be levied and 
paid in lieu of all other taxes a state tax of $1 for 
each $1,000 of consideration, which shall in no case 
be less than the value of the property, and which shall 
be collected by the clerk of the county court.” 40 This 

40 Acts 1893, ch. 89, sec. 8. 


SPECIAL FORMS OF TAXATION. 


145 


provision has remained practically as first enacted, 
except that in 1907 was added the following clause: 
“But no fee shall be charged for such certificate of 
registration of same, and such certificate need not 
be registered.” In 1909 was also added “but the 
county clerk shall receive as a fee for each deed pro¬ 
bated the sum of 15 cents, to be paid when the transfer 
tax is paid.” 

This special tax has been a fruitful source of 
revenue from the beginning. In 1894 the receipts from 
the conveyance of realty amounted to $16,886. Since 
then the sum has mounted higher each year, with a 
few exceptions, reaching $63,157 in 1907 and the high 
watermark of $119,691 in 1918, which was about 
1% P er cent of the total revenue for the year, except¬ 
ing loans. 

Mortgage Tax. Acts of 1917 provided for taxa¬ 
tion of mortgages at the rate of 15 cents on the $100, 
to be in lieu of all other taxes, and payable to the 
county clerk at time of recording same. This sum 
was to be in addition to fees of registration. Under 
the act, mortgages of $1,000 or under are exempt from 
taxation. 41 

This measure was designed to uncover for taxation 
this kind of property, which heretofore had largely 
escaped taxation. The legislative intent was to relieve 
mortgages from the burden of a high rate of taxation 
by reducing the rate from 50 cents to 15 cents on the 
$100. Under that condition it is probable that this 
form of property would have come forward and have 
been placed upon the assessors’ rolls. Many other 


41 Acts 1917, ch. 70, sec. 7. 


146 


TAXATION IN TENNESSEE. 


states had passed the measure and had found it ef¬ 
fective as a source of income. 

But in January, 1919, the Supreme Court of Ten¬ 
nessee held the act unconstitutional upon the ground 
that all property shall be taxed equally according to 
value. Therefore the clause “in lieu of all other 
taxes,” rendered it inoperative in Tennessee, and the 
act could not be construed as a privilege because in 
that event mortgages would be doubly taxed. 

Other states had been able to sustain similar acts 
because the provisions for taxation were not so gen¬ 
erally stated. For example, the Alabama constitution 
permits the exemption of all property of a particular 
kind, and consequently it is only a matter of classifica¬ 
tion to secure the exemption of such property from 
general property taxation in that state. 

The experience with the act before it was rendered 
inoperative by the Supreme Court decision revealed 
the fact that the new law was far more effective than 
the old. Therefore the constitution should be so 
amended as to permit classification of property for 
taxation. 

The Legislature of 1919 re-enacted the law in 
practically the same wording as the previous one, 
except that the rate was changed to 10 cents. 42 

Automobile Registration Fees. Acts 1915 43 required 
the owners of all automobiles, motorcycles, and other 
mechanically propelled vehicles, to register such 
vehicles with the Secretary of State. Upon registra¬ 
tion and the payment of fees ranging from $7.50 to 
$2.50, depending upon the size of the vehicles as to 

42 See Recent Reforms in Taxation. 

43 Ch. 8. 


SPECIAL FORMS OF TAXATION. 


147 


the amount paid, the owner receives a certificate of 
registration. The owner or holder of the certificate 
thereafter is required to register same with the county 
clerk and thereupon pay $1 for such registration, 
except that he shall only pay 50 cents if he makes the 
registration after September. 

The act further provides that in case of transfer 
of any vehicles referred to above, the purchaser shall 
pay a fee at the rates required, and also register the 
certificate with the county clerk in the same manner 
as described in connection with the purchase of such 
vehicle, and pay a fee of 50 cents. The registration 
is not considered complete until registration is made 
with the county clerk. 

Manufacturers and dealers are required to secure 
a demonstration number for each car to be used on 
machines for demonstration purposes. Such dealers 
shall pay to the Secretary of State a fee of $10 for 
such number and registration. 

These fees are payable annually and any failure 
to report promptly to the Secretary of State either 
the sale or purchase of such a car is subject to a fine. 44 
It has been a notable fact in this state that compara¬ 
tively few automobile owners in the past have returned 
such property for taxes. This fee will in a measure 
serve to tax many cars which otherwise would escape 
taxation. At the same time the act of registration 
will enable the assessor to secure more accurate assess¬ 
ments. 


« Acts 1915, ch. 8. 


CHAPTER VI. 

RECENT REFORMS IN TAXATION. 

Investigation of Taxing System. 

The question was recently asked one of the legis¬ 
lators as to what have been the periods of tax agitation 
and reform in Tennessee. He answered unhesitatingly, 
“Every two years since the adoption of the constitu¬ 
tion.” His answer somewhat overstates the facts in 
the case, but with every period of financial need the 
legislatures have repeatedly put their faith in the revi¬ 
sion of the assessment laws, hoping in such revisions to 
find relief. 

Almost each biennial period for many years saw 
the re-enactment of the assessment law, changed in 
such ways as the legislators thought would make them 
more complete. In- most cases after the act of 1889, 
the changes made in the assessment acts were virtually 
a re-statement of the provisions of the old acts in more 
explicit terms. 

After many re-enactments of the assessment law, 
it was urged that the state needed legislative rest 
upon the subject of taxation. So finally in 1907 the 
present law was passed and has only been slightly 
modified since that time. The act was a mere repeti¬ 
tion of the preceding law, but more highly elucidated 
throughout. Such changes as occurred were in the 
interest of clearness. The faith of the people again, 
through their representation, was reposed in the gen¬ 
eral property tax as provided in the general assess¬ 
ment act. It seems to have been thought that if the 


RECENT REFORMS IN TAXATION. 


149 


requirements of the law were made sufficiently clear 
they would be faithfully administered by public offi¬ 
cials and conscientiously observed by the taxpayers. 

The forms of taxation other than the general prop¬ 
erty tax, although more productive comparatively and 
bearing a larger share of the tax burden than the 
general property tax, had ceased to furnish a source 
of complaint, either on the part of the state or on the 
part of the property taxed. In the case of large busi¬ 
ness interests, if they have thought themselves taxed 
unjustly, they have sought relief by certain evasions 
of the tax, rather than by open objection. Some of 
these evasions will be noted in another connection. 

Therefore the state appears to have resigned itself, 
if we may judge from appearances, to the operation 
of such tax laws as were in force after the passage 
of the assessment act of 1907. Only minor changes 
in the tax laws have occurred since that time, par¬ 
ticularly with reference to the general assessment acts, 
except the changes to be discussed in connection with 
Reforms of 1919. 

In a recent message to the Legislature (January, 
1919), Governor Rye reveals the direction in which 
the state is moving under the operation of the assess¬ 
ment act of 1907. 1 He says: ‘‘That the Treasury was 
not receiving adequate revenue to meet governmental 
expenses and perform needed functions and activities 
properly belonging to the state was recognized by that 
very notable Democratic Convention which assembled 
in this city in 1914. That the system of assessing and 
equalizing assessments for purposes of taxation was 


i Ch. 602. 


150 


TAXATION IN TENNESSEE. 


ineffective and impossible of just and equitable appli¬ 
cation was clearly recognized. In a very strong and 
forceful platform declaration, that convention placed 
the Democratic party on record in favor of a State Tax 
Commission with power and authority so centralized 
as to make it possible through correct methods and 
proper administration to have a fair, just, equitable, 
and full assessment of all forms of property.” The 
party convention also pledged the candidate, when 
elected, to the selection of a commission to prepare a 
bill creating a taxing commission and clothing it with 
all the necessary powers. 

Governor Rye was elected, and he appointed the 
temporary tax commission in January, 1915, composed 
of five able men, to make an investigation of the sys¬ 
tem of taxation and prepare a bill to be presented to 
the General Assembly. This commission made its 
investigation and report, some of the particulars of 
which will be shown below, but the Assembly failed 
or refused to act upon the Governor’s and commis¬ 
sion’s suggestions during Governor Rye’s administra¬ 
tion. 

Governor Rye, in his biennial message, January, 
1919, presented figures to show the condition of the 
state’s finances. According to his figures, which are 
correct without doubt, since they were taken directly 
from the Treasurer’s and Comptroller’s reports for 
the last four years, 1915 to 1918, receipts were falling 
behind expenditures at the rate of almost a half million 
dollars per year. 2 He accounted for this condition of 
excess of expenditures over receipts by the withdrawal 

2 Governor Rye’s biennial Message to the 61st General 
Assembly. 


RECENT REFORMS IN TAXATION. 


151 


of the liquor traffic from the state. Since the loss 
of the large amount of receipts derived from the 
liquor business previous to 1914, no other source of 
revenue had been created to replace it. And since it 
is true of all civilized governments that expenditures 
are always increasing and never decreasing, even the 
most conservative tax reformer was convinced that 
some step would have to be taken to meet the unusual 
situation. In the meantime, however, the special tax 
commission appointed by Governor Rye, referred to 
above, had made their investigation and rendered their 
report. Some of the findings, together with the opin¬ 
ions of the commission, need be reviewed in this con¬ 
nection to show the effects of the investigation upon 
the ultimate revision of the tax laws of the state. 

To begin with, the commission pointed out the 
fundamental defect of the state's taxing system, 
namely, the constitutional provision for the general 
property tax as the basis of the tax system. In this 
connection a new constitution was recommended in 
which would be eliminated the inelastic features of 
the present constitution, so that Tennessee might fol¬ 
low the lead of the more progressive states in matters 
of tax reform. 

The special tax commission devoted the greater 
part of its time in the investigation of the assessment 
system. The opinion of the commission was changed 
but little in the outcome, but the investigation verified 
the current beliefs with reference to certain condi¬ 
tions and practices in connection with assessments in 
the state. 

Practically all assessment laws in Tennessee have 
provided for the assessment of property at its “actual 


152 


TAXATION IN TENNESSEE. 


cash value,” but it was found that ‘‘nothing was so 
rare as the actual-cash-value assessment. If any such 
are on the assessment rolls,” says the report, “it is 
through accident or mistake of the assessor.” The 
officials freely admitted that instead of making assess¬ 
ments at the actual cash value provided by law, they 
had assessed individual properties all the way from 
10 to 80 per cent of actual value. It was found that 
in whole counties the aggregate tax value did not con¬ 
stitute 25 per cent of the actual value of the property 
in the county. In no case was it believed that the 
aggregate tax value amounted to more than 60 per 
cent of the actual value. 

It is to be understood that the assessors in the 
state are not wholly to blame for under-valued prop¬ 
erty upon the assessment rolls. In the first place the 
assessor is poorly paid, which does not inspire vigilance 
on his part. By law the assessor is required to see the 
tax schedules properly filled out and sworn to, but it 
is doubtful in the most instances if anyone could afford 
to carry out this provision for the compensation the 
assessor receives. If he were as vigilant as the law 
requires, he would probably lose money on his year’s 
work, and certainly would he lose the friendship of 
his constituents and his office in the next election. 
It is also invariably true in other states as well as in 
Tennessee that the assessor is inadequately supplied 
with mechanical equipment, such as maps, charts, 
guides, calculators, etc. 

Then, too, the assessor, according to the Tax Com¬ 
mission Report, must not only resist the pleas for 
leniency in assessment from “tax dodgers,” but vir- 


RECENT REFORMS IN TAXATION. 


153 


tually “hunt down” those who persistently evade the 
taxes. It was found/as is practically always the case 
under the general property tax system, that the larger 
property owners are being assessed less in proportion 
to value than the owners of small farms and small 
homes in the cities. And the conclusion the commis¬ 
sion came to was that some or all of these defects 
in the system could .be remedied by centralized super¬ 
vision of the assessors, similar to the present plan in 
Kentucky, and a more efficient plan of equalization. 

The commission pointed out the defects and 
soundly criticised the gross inequalities in the assess¬ 
ment of intangible personalty. It was the opinion of 
the commission that there were 20,000 automobiles 
in the state, with probably one per cent of that number 
returned for taxes. It was also thought that the 
intangible personalty in the rural districts was more 
nearly reached for purposes of taxation than the same 
kind of property in the city, neither one, however, 
being so successfully reached as the statutes have de¬ 
manded. This inequality has been somewhat ignored 
upon the ground that the high tax rates prevailing in 
the cities render the taxation of intangible personalty 
practically confiscatory. It is thought that not over 
10 per cent of the value of such property appears on 
the assessment books. Relative to this form of general 
property taxation the strong language used by Pro¬ 
fessor Seligman with regard to the general property 
taxation as a whole, namely, “that it puts a premium 
on dishonesty and debauches the public conscience,” 
may aptly be applied. 

It will be remembered, with regard to equalization 
of assessments, that the State Board of Equalization, 


154 


TAXATION IN TENNESSEE. 


under the statutes previous to 1919, was not permitted 
to equalize assessments by counties or districts. This 
had been permissible by acts of 1895, but the succeed¬ 
ing act, 1897, removed that provision, and since that 
time equalization has been made only between indi¬ 
vidual assessments. The special tax commission rec¬ 
ommended a permanent tax commission, which they 
believed would eliminate many defects and difficulties 
herein enumerated. 3 

The investigating committee also gave its attention 
to the system of double taxation in the state. The plan 
of taxing real estate in the hands of the owner and the 
mortgage in the hands of the mortgagee was criticised. 
Also, in the case of corporations it was pointed out 
that the corporation is taxed upon the value of its 
capital stock and also on the bonds of the corporation, 
while the bonds are also taxed in the hands of the 
owner provided they are held within the state. 

The special tax commission considered the mer¬ 
chants’ tax unjust because of its principle of double 
taxation. The commission thought that it was never 
intended by the authors of the constitution that the 
merchants’ ad valorem tax rate should be the same as 
the rate upon other property. The writer agrees with 
the commission, with regard to the feature of unjust¬ 
ness in the merchants’ taxation, but not with their 
idea of the purpose in the minds of the authors of 
the constitution, as was shown in connection with the 
discussion of merchants’ taxation. The occupation of 
the merchants was considered a privilege and the early 

3 See recommendations of the Special Tax Commission 
below. 


RECENT REFORMS IN TAXATION. 


155 


law-makers evidently believed that those engaged in 
such business should be doubly taxed because of the 
privilege which they enjoyed. Probably the early 
legislators, as well as the makers of the constitution, 
considered the merchants’ tax a fruitful source of 
revenue and one not easily evaded. However, even 
the merchants’ tax has not been invulnerable to the 
tax dodger. A better statement of the whole case 
would probably be that the merchants’ tax has been 
outgrown by the state, and hence that feature of the 
tax laws should be repealed. It is true, however, that 
the merchant has had a double purpose in the evasion 
of assessment because of the fact that both ad valorem 
and privilege taxes are measured by the valuation of 
his stock. Yet it is still doubtful if the condition of 
tax evasion would have been materially changed if 
there had been only a merchants’ ad valorem tax. 

The committee in its report also pointed out the 
abuse of the exemption provisions. They thought that 
certain institutions had derived the benefit of exemp¬ 
tion upon property held for purposes of speculation. 
This is probably true with regard to certain privately 
owned colleges and fraternal organizations. This dis¬ 
tinction between public welfare institutions and those 
operated for profit should be made very clear in the 
law. 

All these things and more the special tax commis¬ 
sion pointed out as weaknesses of the assessment sys¬ 
tem of Tennessee. As a remedy the commission rec¬ 
ommended the appointment of a permanent tax com¬ 
mission, about which was to be built up a more efficient 
taxing system in the state. Space here forbids a com- 


156 


TAXATION IN TENNESSEE. 


plete explanation of the recommendations of the com¬ 
mission, but the summary is here quoted from the 
report, which is as follows: 

“That a permanent Tax Commission of 
three members, one from each grand division 
of the state, be appointed by the Governor, to 
have supervision of the assessments and equali¬ 
zation of all property in the state. 

“That the assessors do their work under the 
supervision of this Tax Commission, which 
shall have the power to remove assessors for 
cause and appoint their successors until the 
first day of January following the next regular 
county election. 

“That merchants’ taxes shall be assessed by 
the County Court Clerks, but shall be reported 
to and equalized by the Tax Commission. 

“That property now assessed by the Rail¬ 
road Commission shall continue to be so as¬ 
sessed, but that the Tax Commission shall per¬ 
form the duties of the Board of Equalization 
for such property. 

“That the Tax Commission shall perform 
the duties of the Board of Equalization for all 
other property. 

“That holders of mortgage notes, lien notes, 
bonds, and all such securities, public or private, 
shall pay a state tax on their incomes from such 
property. Also, that a small registration tax 
on such instruments be imposed. 

“That there shall be a survey of the state, 


RECENT REFORMS IN TAXATION. 


157 


and taxes assessed with the aid of county 
maps. 

“That a limit of time shall be given tor the 
adjudication of every title now disputed in the 
courts, and payment of taxes shall be requisite 
to establishment of claim. 

“That after two years the holder of prop¬ 
erty under a tax title shall not be disturbed. 

“That after a receipt for taxes has been 
issued there shall be no reassessment of the 
property for that year or previous. 

“That until in the judgment of the Tax 
Commission it is not longer necessary, there 
shall be annual assessments of both real and 
personal property for reasons shown in this 
report. 

“That no assessor shall be fully paid for 
his work of assessment until a certificate is 
issued by the Tax Commission that he has com¬ 
plied with the law. 

“That under the Comptroller a system of 
checking up and collecting from delinquent offi¬ 
cials be devised, and for the installation of 
uniform systems of bookkeeping.” 4 

The commission drafted three bills for the con¬ 
sideration of the Assembly, which were intended to 
remedy the defects pointed out by the commission and 
to carry out the recommendations made, but with the 
result stated in the beginning. One was a general 
assessment bill, another provided for a sliding scale 

4 Special Tax Commission Report, 1915. 


158 


TAXATION IN TENNESSEE. 


of tax rates, and the third dealt with the problem of 
quieting land titles. 

The picture of the taxing system in the state, in 
so far as it affected the general property assessment, 
was clearly drawn by the special tax commission. 
The beliefs and fears concerning the defects in the 
system were substantially verified by the investiga¬ 
tions. The recommendations made by the commission 
were based upon the constitution as it is and not as 
it should be. Their investigations, although limited 
in scope, were conclusive as to what the exigencies of 
the case demanded. But, as pointed out before, the 
General Assembly of 1915 and 1917 looked over the 
proposals, gravely considered the situation, but de¬ 
cided, in the words of Governor Rye, “to pass the 
buck/’ 

Although two biennial sessions of the Assembly 
passed after the recommendations of the special tax 
commission, yet the report was not without good 
results. Tennesseans, like all good Americans, are 
conservative, too conservative, with regard to tax 
reform. The figures presented by Governor Rye in 
his last message to the Assembly revealed the inevita¬ 
ble direction in which the state was traveling under 
the present financial system. At the end of the fiscal 
period of 1917-18 there was no longer any doubt as 
to the fact that the State of Tennessee was falling 
in debt at the rate of a half million dollars per year. 

Reform Acts of 1919. 

The Governor’s Message to the Assembly. Gov¬ 
ernor Roberts’ message to the Sixty-first General As¬ 
sembly, January 16, 1919, carried six general points 


RECENT REFORMS IN TAXATION. 


159 


of recommendation, which are briefly summarized 
as follows: (1) Economy of administration; (2) 
a change in the criminal litigation tax of $5 to an 
item of court cost, in order to facilitate such col¬ 
lections; (3) a revision of the inheritance tax law, 
both as to rates and to include life Insurance policies 
as subject to the inheritance tax law; (4) the transfer 
of quasi-public corporations into the department of 
the Railroad Commission for purposes of taxation; 
(5) the duties of the Railroad Commission to include 
those of the State Board of Equalization under pre¬ 
vious laws, and larger powers to be conferred on the 
Commission with regard to equalization of assessment 
values; (6) a permanent sliding scale tax rate. 

In connection with the first of the recommendations 
enumerated above, the Governor outlines the policy 
of the administration with reference to the subject of 
economy. His observations in that connection are 
sound, but the administration is too young at this 
time to judge its ultimate results. The indications are, 
however, that parsimonious use will not be made of 
the state’s resources, but economy in the true sense 
will be exercised throughout. 

The other recommendations contained in the Gov¬ 
ernor’s message deal with the subject of taxation, and 
it is with these that we are especially concerned in this 
discussion. The Governor urged upon the Assembly 
the early consideration of tax reform measures, with 
the result that practically all administration tax bills 
were enacted into laws early in the session. A brief 
discussion of these acts, together with their significance 
in terms of previous laws, appears below. For the 
sake of convenience these measures will be considered 


160 


TAXATION IN TENNESSEE. 


here in the order in which they appear in the Gov¬ 
ernor’s message. 

Litigation Tax, Chapters 57 and 134. It was point¬ 
ed out by the Governor that the Supreme Court had 
held the state and county taxes in criminal cases to be 
mere debts, and therefore a convicted defendant can¬ 
not be imprisoned and made to work out these taxes. 
“Hence, in many jurisdictions, unless convicted de¬ 
fendants voluntarily pay or secure the payment of the 
litigation taxes, they are never collected.” 

The administration measure, which was enacted, 
purporting to remedy this feature in the previous stat¬ 
utes, provides that any person convicted for criminal 
offense in any court in the state shall be required “to 
pay or secure, or work out in the workhouse, in ad¬ 
dition to the other costs in the case, a county expense 
fee of $5, and a state expense fee of $5 for each de¬ 
fendant.” Such fees shall be collected with other 
court costs and paid over to the state and county, re¬ 
spectively. 5 

The impression obtained in this connection from an 
interview with one of the state officials is that the 
county will be relieved from obligation concerning 
such taxes where they are not collected, and that the 
tax is changed from a debt to an item of court cost. 6 
Consequently it is expected that the anticipations of 
the Governor in his recommendations to the Assembly 
will be realized by the new acts. 

In this connection, also, the special provision for 

s House bill 163, Acts 1919, ch. 57. 

6 Interview with Hon. A. V. Louthan, Chief Tax Statis¬ 
tician. 


RECENT REFORMS IN TAXATION. 


161 


taxes on litigation provided by the general revenue act 
declares that “The taxes on litigation above provided 
for shall be taxed as a part of the costs of the case 
and in no case shall be remitted. The amount of any 
such tax remitted by a judge or attorney general in a 
criminal case shall be deducted by the Comptroller of 
the Treasury from the salary of such judge or attor¬ 
ney general.” 7 However, exception is made of cases 
appealed from the court of justice of the peace to the 
circuit court. In such case no tax—the tax is $2.50— 
shall be collectible if such appeal is dismissed before 
the first term of the circuit court convenes when the 
case would stand for trial. 

Inheritance Tax Law, Chapter 46. The Governor 
recommended the passage of an entirely new in¬ 
heritance tax law, which should not only include the 
essential provisions of the old law with a slight in¬ 
crease in rates, but which should be so extended in 
scope as to include large holdings of wealth which 
have previously escaped taxation. The items of 
wealth particularly referred to in the Governor’s mes¬ 
sage are large sums of money invested in non-taxable 
Government securities, and investments in life insur¬ 
ance, both of which escaped taxation except under the 
operation of an inheritance tax law. 

So sweeping were the changes in the inheritance 
tax law that it is possible here only to give a brief 
outline of the provisions of the act, and to point out 
incidentally the more important changes which the new 
act provides. 

The general provisions of the act are as follows: 

7 Acts 1919, ch. 134, sec. 4. 


162 


TAXATION IN TENNESSEE. 


1. All property inherited from resident owners 
is subject to the operation of the law. 

2. All property inherited from non-residents 
is subject to the tax, except 

a. money on hand or on deposit, 

b. shares of stock, bonds or notes held as 
collateral to secure bona fide indebted¬ 
ness owed by the owner, and 

c. all shares of stock, bonds, notes, or 
other evidences of debt which would 
be subject to an inheritance tax in an¬ 
other state. (All these exceptions are 
changes from preceding laws.) 

3. All direct and collateral inheritances in the 
form of life insurance are subject to taxa¬ 
tion by the act. 

4. All property enumerated above, subject to 
the operation of the law, which is trans¬ 
ferred or disposed of in contemplation 
of death two years next preceding the date 
of such death, except by bona fide purchase 
or exchange equal in value, shall be subject 
to the tax. 

5. The law shall operate in case of joint or 
partnership ownership. 

6. Whenever a trustee shall make disposition 
of estates for owner after the owner’s 
death or where such transfer is subject to 
any charge, estate, or interest, determin¬ 
able by death, such increase derivable from 
such property is taxable. 


RECENT REFORMS IN TAXATION. 


163 


Exceptions or exemptions from the operation of 
the inheritance tax are as follows: 

1. Where the property has a market value less 
than $1,000. 

2. Property having a “clear market value” of 
less than $10,000, transferred to the wife 
and direct descendants and ascendants, or 
to either, except that the transfer shall be 
considered as a whole. 

3. All property transferred to municipal cor¬ 
porations for strictly municipal purposes. 

4. All property transferred to a church, school, 
or charitable institution to be used respect¬ 
ively for purely religious, educational, or 
charitable purposes. (This is practically a 
restatement of the clause which was de¬ 
clared unconstitutional in acts of 1903. See 
Inheritance Taxation.) 

The exceptions referred to above distinguish the 
present from the preceding acts in almost every par¬ 
ticular. There had previously been an exemption of 
only $250, and heretofore the inheritance law had 
operated equally with regard to inheritances obtained 
by husband and wife. Heretofore there had been no 
exception made of inheritances for the benefit of 
charitable or educational institutions. It will also be 
noted that no exception is made in case the husband is 
the beneficiary. 

The direct inheritance tax rate is as follows: 
Where the person entitled thereto is the husband, 
wife, or direct descendant or ascendant, the rate is 1 
per cent on amounts from $10,000 to $25,000; iy 2 per 


164 


TAXATION IN TENNESSEE. 


cent on the next $25,000 ; 2 per cent on the next $25,- 
000 ; 3 per cent on the next $400,000; and 5 per cent 
on $500,000 and all over that sum. The difference in 
the rate here as compared with preceding acts is in a 
more rapidly increasing progressive tax rate on 
amounts above $20,000, which was not a feature of the 
preceding laws. 

The collateral inheritance tax rate provided by the 
act is as follows: 5 per cent on amounts from $1,000 
to $50,000; 6 per cent on the next $50,000 or fraction 
thereof; 7 per cent on the next $50,000 and part there¬ 
of ; 8 and 9 per cent on the next two additions of $50,- 
000, respectively; and 10 per cent on $250,000 and all 
over that sum. This part of the act also contains a 
progressive graduation of rates, as distinguished from 
the uniform rate of 5 per cent in the preceding acts, 
and in reality represents a considerable increase. 

The machinery for the operation of the inheritance 
tax law is practically the same as provided by the pre¬ 
ceding acts, with the exception of a few changes, the 
leading ones of which appear below. 

The county clerk is to receive the same commission 
for collections under the act as provided before; name¬ 
ly, 5 per cent of all inheritance taxes collected and ac^ 
counted for, except that the commission shall not ex¬ 
ceed $100 in any case. 

Every life insurance company or association doing 
business in the state shall, within ten days after the 
approval of proof of death of a person insured, give 
notice in writing of date and amount of the policy, 
name and address of each beneficiary, and the time 
and manner of payment; except that companies are not 
required under the act to report deaths under indus- 


RECENT REFORMS IN TAXATION. 


165 


trial or weekly premium policies, the benefits of which 
are not more than $250. 

The procedure in case of appeals made in connec¬ 
tion with appraisement and valuation is somewhat dif¬ 
ferent in the new act. Under the old plan the appeal 
was made from the local appraisers to the county 
clerk, and from the county clerk to the circuit or chan¬ 
cery court. By the new act the appeal from the local 
appraisers is made to a special board of appraisers, 
consisting of the county clerk and a special appraiser 
appointed by the Comptroller of the Treasury. Appea 1 
from this board is made to the State Board of Railroad 
Commissioners, acting as a State Board of Equaliza¬ 
tion. The decision of the Railroad Commission is 
final. 

The Comptroller is directed under the act to enter 
into reciprocal relations with the Federal Govern¬ 
ment, through federal officials charged with the admin¬ 
istration of the federal inheritance tax law • in the 
state, so that the state and federal governments may 
exchange information relative to appraisement and 
valuation of property subject to the inheritance tax 
laws. 8 

Reference to the general inheritance tax laws, dis¬ 
cussed fully in a preceding chapter, 9 reveals the sweep¬ 
ing changes made in the new law. The Governor’s 
prediction in connection with his recommendations to 
the Assembly, advising these changes is that “this bill, 
if enacted, should produce a hundred and fifty or two 
hundred thousand dollars additional revenue annually, 

8 Acts 1919, ch. 46. 

9 See Inheritance Taxation. 


166 


TAXATION IN TENNESSEE. 


and would not fall with undue weight upon any class 
of persons.” 10 

There were three other important tax measures 
recommended by Governor Roberts, which were sub¬ 
sequently enacted. Taking the three acts together, 
probably no greater tax reform has been effected dur¬ 
ing the state’s history under the present constitution. 
These changes were included in bills numbers 77, 78, 
and 115. The first two of these bills will be discussed 
here as companion measures; the third will be treated 
separately. 

The Railroad Commission Made State Board of 
Equalization, Chapter I. Bill 77 11 provides “to enlarge, 
increase, and supplement the duties and powers of the 
Railroad Commission; to constitute the Railroad Com¬ 
mission a State Board of Equalization; to provide the 
means and agencies for the ascertainment and equaliza¬ 
tion of the value of all forms of property, so that 
taxes thereon shall be equal and uniform throughout 
the state; and to direct county courts and municipali¬ 
ties as to the time of fixing rates.” The other bill, 
number 78, 12 provides for a sliding scale tax rate. 

In making his recommendations to the Assembly 
and urging a prompt consideration of these measures, 
the Governor pointed out the current practices and 
conditions with regard to assessment and equalization 
of property in the state. His observations were large¬ 
ly the same as those already recorded for the special 
tax commission. He said: “We now have two state 

10 Message of Gov. A. H. Roberts to the Sixty-first Gen¬ 
eral Assembly. 

“ Ch. I. 

12 Ch. 2. 


RECENT REFORMS IN TAXATION. 


167 


boards of equalization, one charged with the duty of 
equalizing the assessments upon railroads and certain 
other public utilities, and the other board charged with 
equalizing assessments of land and personal property. 
We should have only one board and it should have suf¬ 
ficient power to compel every property owner to bear 
his just share of the tax burden.” He further pointed 
out that “we have ninety-six systems or pretenses, each 
county vying with the other in an effort to reduce the 
assessment so as to minimize the amount of state taxes 
to be paid by that county.” The Governor thought 
that under certain conditions the Railroad Commission 
would obviate these difficulties. 

The assessors, as mentioned in connection with the 
special tax commission report, had openly assessed 
property at much less than its actual value. They 
thought that there was always the possibility under the 
full rendition to create a surplus in the treasury, which 
they felt would be used extravagantly, if it existed. 
To obviate this difficulty in securing adequate assess¬ 
ments, the Governor caused to be introduced bill num¬ 
ber 78, 13 the companion measure of number 77, which 
provides a sliding scale tax rate. This bill provides for 
a reduction of rate with every increase in valuation, as 
a more detailed discussion of the act below will show. 
Thus an incentive should be offered for a more accu¬ 
rate assessment, because with the operation of an auto¬ 
matic sliding scale tax rate a surplus in the treasury 
would be impossible. 14 

The bills referred to above were promptly passed 

is Ch. 2. 

14 Message of Gov. A. H. Roberts to the 61st General As¬ 
sembly. 


168 


TAXATION IN TENNESSEE. 


by the Assembly. 15 Chapter l 16 took away the powers 
and duties of the old State Board of Equalization and 
conferred such powers and duties upon the Railroad 
Commission. The act also provides for the employ¬ 
ment by the Railroad Commission of a Chief Tax 
Statistician and his assistants, who shall have broad 
powers of investigating the tax valuations of assess¬ 
ments in all the counties and municipalities of the state. 

The general provisions of these acts resemble in 
many respects the recommendations made by the spe¬ 
cial tax commission in 1915. The Railroad Commis¬ 
sion will have many of the powers and duties that the 
permanent tax commission would have had, if the rec¬ 
ommendations of the special tax commission had been 
acted upon. The Railroad Commission, through the 
Statistician and his assistants, will make investigations 
in connection with the offices of county clerks and as¬ 
sessors, and probably summon the various county 
boards of equalization before it in order to make the 
tax values throughout the state more nearly equal and 
uniform. 

No greater change in the tax laws or tax reform, 
probably has occurred in the history of taxation in the 
state than the one provided by the two acts referred 
to above, together with Chapter 3, 17 discussed below. 
Local autonomy in assessments has always been one of 
the greatest objections to the general property tax sys¬ 
tem in the state. In fact, one of the greatest faults 
has been the practice of the state in determining the 

15 Acts 1919, chs. 1, 2, and 3. 

16 Bill 77. 

« Bill 115. 


RECENT REFORMS IN TAXATION. 


169 


rate of tax levy for local purposes, but then virtually 
leaving it to the local authorities to determine the valu¬ 
ation of assessments. 

Under the provisions of the law last referred to the 
Railroad Commission as a State Board of Equalization 
may equalize the assessments of 1919 on any basis 
the Commission may adopt—that is, the Commission 
may equalize the tax values by a percentage increase 
or decrease of the county, ward, or district, or by a 
complete review and adjustment, taking each piece of 
property separately and placing a value upon it. The 
Commission is acting under the impression that on ac¬ 
count of gross inaccuracy of assessment and inequali¬ 
ties, no uniformity can be obtained without minute in¬ 
quiry into assessments of all counties, wards and dis¬ 
tricts, and the re-valuation of property. 

The members of the Railroad Commission have a 
full appreciation of the task in hand and are proceed¬ 
ing, with the assistance of the Chief Statistician and 
his assistants, to carry out a full and thorough investi¬ 
gation, so as to make a fair beginning in placing all 
property on the assessment books at its fair and uni¬ 
form value. 18 It is believed that within a few years 
the new commission will obviate many of the former 
difficulties in property assessments in Tennessee. 

The tendency in the past has been to tax corpora¬ 
tion property, such as the property of railroads and 
telegraphs, at a higher proportion of valuation than 
farm lands. Those opposing the bill felt that the at¬ 
tempt would be made under the new acts to tax farm 
lands higher than they have been taxed in the past, be- 

18 Interview with Colonel Enloe, Chairman of the Rail¬ 
road Commission. 


170 


TAXATION IN TENNESSEE. 


cause the same board, namely, the Railroad Commis¬ 
sion, would have in charge both the assessment of cor¬ 
poration property and the equalization of all other 
forms of property. And furthermore it was believed 
that the corporations will not be compelled to co-oper¬ 
ate in the plan of equal assessments, but that the forms 
of property under the authority of local assessors will 
be assessed at full value. It was feared that in conse¬ 
quence the discrimination in the future might be in 
favor of corporations rather than in favor of the 
small property owner. However, the objection in the 
case was not against the laws themselves, but the pos¬ 
sible administration of them. 19 

Those in favor of the new acts believe that the new 
plan will have a good psychological effect upon asses¬ 
sors in favor of better assessments and upon individual 
owners of property for more adequate returns; 20 and 
it is believed that if the act fails in its intention, it will 
be due to lack of proper administraton on the part of 
the Railroad Commission and to lack of co-operation 
on the part of local authorities in the rulings with ref¬ 
erence to horizontal increases. 20 * 

Under the new acts, the Governor, Secretary of 
State, and Treasurer, are equalizers of certain quasi¬ 
public corporation property just as they were under 
previous acts. This Board in the past has not made 
the valuation of such property correspond to that of 
other forms. It has been true, as stated before, that 

19 Interview with Senator Park Worley of Sullivan 
County. 

20 Interview with Senator Dr. C. Y. Clark. 

20 * Interview with Senator L. E. Gwinn of Tipton. 


RECENT REFORMS IN TAXATION. 


171 


corporation property has been equalized at a higher 
value than other forms. 

Sliding Scale Tax Rate, Chapter II. Bill 78, Chap¬ 
ter 2 of acts of 1919, provides a sliding scale tax rate, 
which is graduated as follows: Beginning with the 
year 1919 and subsequent years the total tax rate shall 
be 65 cents; provided, however, if the assessment value 
reaches nine hundred million dollars, the following 
rates become operative: 


For 

$ 900,000,000 

and 

less 

than 

$1,000,000,000, 

total 

rate 

58.5 

cents 

For 

1,000,000,000 

and 

less 

than 

1,100,000,000, 

total 

rate 

52.0 

cents 

For 

1,100,000,000 

and 

less 

than 

1,200,000,000, 

total 

rate 

47.75 

cents 

For 

1,200,000,000 

and 

less 

than 

1,300,000,000, 

total 

rate 

44.75 

cents 

For 

1,300,000,000 

and 

less 

than 

1,400,000,000, 

total 

rate 

40.25 

cents 

For 

1,400,000,000 

and 

less 

than 

1,500,000,000, 

total 

rate 

39.25 

cents 

For 

1,500,000,000 

and 

less 

than 

1,600,000,000, 

total 

rate 

35.0 

cents 

For 

1,600,000,000 

and 

less 

than 

1,700,000,000, 

total 

rate 

33.5 

cents 


In case the assessment valuation reaches over sev¬ 
enteen hundred million dollars, the rate should be cor¬ 
respondingly decreased, merchants’ capital to bear the 
same rate. 

Thus as the assessment value increases the rate de¬ 
creases in the same ratio, so that a gross assessment 
of nine hundred million dollars will produce the same 
amount of revenue as a gross assessment of fifteen 
hundred million, or any other larger sum. In this way 
the taxpayer is protected in his property rights against 
the possibility of the collection of a sum of money not 
needed to carry on the state government. On the other 
hand, the state is likewise assured of a sufficient fund 
for its necessary expenses. It is believed that this 
plan of using an elastic tax rate will bring out of con¬ 
cealment many forms of intangible property which 
heretofore have been withheld from the assessment 
rolls. 


172 


TAXATION IN TENNESSEE. 


Railroad Commission Made State Board of Tax 
Assessors. Chapter III. The other important ad¬ 
ministration tax measure, referred to in connection 
with acts 1 and 2 21 is act 3. 22 This act authorizes and 
directs the assessment of quasi-public corporations for 
state, county, and municipal taxes by the Railroad 
Commission as a State Board of Tax Assessors. The 
properties included in this act are those of railroad, 
telegraph, telephone, sleeping car, freight car, street 
railroad, interurban railroad, express, pipe line, power, 
and gas and electric light companies. Under previous 
acts no provision had been made for the taxation of 
intangible property of some of these companies, partic¬ 
ularly express companies, Pullman companies, and 
transportation companies of various kinds. 

The purpose of the above act is not materially dif¬ 
ferent from preceding acts, except in its inclusion of 
certain companies previously assessed for taxes by the 
local assessors, which is quite clear as compared with 
the previous discussion of taxation under the authori¬ 
ty of the Railroad Commission. 23 No material change 
in the method of assessment exists in the new act, ex¬ 
cept that a full cash value assessment is contemplated. 

The advantages derived from the assessment for 
taxes of all quasi-public corporation properties by the 
Railroad Commission are the same as were shown in 
connection with the assessment of railroad, telegraph, 
and telephone companies by acts of 1897. 24 No doubt 
the assessment will be more efficient and thorough 

Bills 77 and 78. 

22 Senate bill 115. 

23 See Taxation of Railroads. 

24 See Railroad Taxation. 


RECENT REFORMS IN TAXATION. 


173 


when made by the Commission than could possibly be 
made by local assessors. Especially will the Railroad 
Commission be able to keep a close check upon these 
companies since the passage of the “public utilities 
act.” 25 

The act discussed above (Ch. 3) was amended by 
acts of 1919. 26 The amending act deals especially 
with the assessment for taxes of cars used in transpor¬ 
tation, other than those belonging to railroad com¬ 
panies. The cars included in the act are sleeping cars, 
refrigeration cars, itinerant cars, merchants’ transpor¬ 
tation cars, etc. The owners of such cars are required 
to make an annual report to the Railroad Commission, 
showing the number of miles of track owned by the 
railroad company which furnishes the trackage, the 
number of miles over which the cars operate within 
and without the state, the number of cars and the num¬ 
ber of miles over which each car has run during the 
year and their respective values. 

The purpose of this amendment was to enlarge th§ 
scope of the general act, so as to reach the owners of 
private cars that are being operated in the state, where 
their owners are engaged in transportation and the 
business of handling their own products, or leasing 
their cars to the railroad companies. Heretofore such 
cars have escaped taxation because previous laws were 
so framed that the proper information could not be 
secured. 

Dog Law. Other tax laws of less importance 
were enacted by the last session of the Assembly. The 

25 Acts 1919, ch. 49. 

26 Ch. 187. 


174 


TAXATION IN TENNESSEE. 


“dog law” enacted requires, under penalty, the regis¬ 
tration of each dog in the state more than 6 months 
of age, the owner of which shall pay an annual license 
fee of one dollar for each male dog and three dollars 
for each female dog kept within the state. The funds 
derived from the dog license tax shall constitute a 
“sheep fund” which shall be kept by the county trustee, 
and used for the payment of damages sustained by 
sheep owners of killed or maimed sheep, where the 
sheep are killed or injured by dogs held within the 
State. 

Fees and Other Charges. An act was also passed 
at the last session of the General Assembly, providing 
a change in schedule of fees required of banks in the 
State. 27 Under the act banks now pay from $15 on 
capital of $10,000 to $500 on a capital of $1,000,000 or 
over. 28 In connection with banks, too, by acts of 1907 
corporations were required to make annual reports to 
the department of Secretary of State. Acts of 1919 
amended the act mentioned above 29 with respect to 
banks and trust companies; so that such companies 
and corporations now make their reports to the Bank¬ 
ing Department. 30 The fees from these institutions 
will be transferred to that department, which will af¬ 
fect the income of the department of Secretary of 
State by about $10,000 per annum. 

The special revenue act of 1919 31 provides a change 
in the insurance agents’ tax. Under the act the annual 

27 Acts 1919, ch. 229. 

28 This act amends ch. 20, acts 1913. 

29 Ch. 434. 

39 Ch. 21. 

31 Acts 1919, ch. 134, sec. 6. 


RECENT REFORMS IN TAXATION. 


175 


privilege tax is raised from $10 to $20 per annum in 
counties with a population of 100,000 inhabitants or 
more, $15 in counties having a population of 60,000 to 
100,000, and $10 in counties of less than 60,000 inhab¬ 
itants. This virtually means an increase of the insur¬ 
ance agents’ privilege taxes in Davidson, Shelby, 
Knox, and Hamilton counties. The payment of the 
tax shall entitle such agents to solicit insurance in any 
county in the state which corresponds in size to the 
amount of the license; except that the payment of a 
privilege tax of $10 by an industrial agent shall entitle 
such agent to solicit industrial insurance in any county 
in the state. 

There were other minor changes made in the rates 
of privilege taxes, other than those already mentioned, 
which may be readily found in the general Revenue 
Act of 1919. Also there were some important meas¬ 
ures enacted in the interest of public education, which 
appear in connection with the chapter of taxation for 
educational purposes. 32 

Bonds for Local Improvement , Chapter 114. The 
recent Assembly passed an act providing that all bonds 
hereafter issued by the state of Tennessee upon the 
faith and credit of the state for public purposes shall 
not be taxed by state, county, or municipality. 33 An¬ 
other act amended acts of 1913 34 so as to enable coun¬ 
ties of the state, through their quarterly courts, to is¬ 
sue bonds for highway purposes and giving authority 
to such courts for the expenditure of funds derived 
from such bonds. Such bonds are to be of $1,000 de- 

32 See Taxation for Educational Purposes. 

33 Acts 1919, ch. 114. 

3^ Ch. 26. 


176 


TAXATION IN TENNESSEE. 


nomination and not to exceed 6 per cent interest. 
They must be submitted to the voters, and the county 
court may levy not to exceed 100 cents per $100 to take 
care of the interest and sinking fund. The cost of the 
collection of the money to pay off the bonds shall not 
exceed 1 per cent, and such bonds may be issued for 
all kinds of road improvement. 

Measures Which Failed of Passage. Other meas¬ 
ures were introduced in the Assembly which were 
designed to bring out for purposes of taxation various 
forms of intangible personalty, but they failed of pas¬ 
sage. One of these was Senate Bill 944. This bill, 
according to its wording, would have penalized heavily 
any failure to make adequate returns of both tangible 
and intangible property. But the all-inclusiveness of 
the bill caused its defeat. Those favoring the bill 
felt that it should be enacted in order to keep faith 
with bill 77 and the Governor’s platform. According 
to one member of the Senate, “Not to adopt such a 
measure fails to correspond to existing measures which 
will bring out real estate and other tangible person¬ 
alty.” 35 Others argued, however, that the passage of 
bill 944 was not necessary, because we already have 
adequate provisions for the assessment of intangible 
personalty. According to another opinion, “If bill 
77 36 is fairly and effectively administered, the personal 
property situation will take care of itself. That is, 
if real estate is assessed as required by law, the tax 
assessor will make more determined effort to locate 
and assess the personal property, and the property 
owner will return his personalty for taxes, because 

35 Interview with Senator Dr. C. Y. Clark. 

36 Chapter 1. 


RECENT REFORMS IN TAXATION. 


177 


there will be a reduction of rate so that the tax will 
no longer be confiscatory, as under the practical admin¬ 
istration of existing laws.” 37 

Provision for Constitutional Convention . The last 
session of the General Assembly passed two other 
important bills and one resolution dealing with taxa¬ 
tion indirectly. The first of the bills referred to pro¬ 
vides for an election the first Thursday in September, 
1919, to decide whether the state will “alter, reform, 
or adopt a new Constitution.” 38 The other provides 
for another election the first Tuesday after the first 
Monday in October, following, to elect delegates to 
the constitutional convention, provided the preceding 
election decides in favor of a constitutional convention. 

Senate Joint Resolution 56 proposes an amendment 
to the Constitution providing that “The General 
Assembly shall have power to levy and collect taxes 
on incomes from whatever source derived.” 39 The 
proposed amendment, if it should pass by two-thirds 
majority vote of both houses of the next General 
Assembly, will be submitted to the people for adoption, 
in accordance with the constitutional provisions deter¬ 
mining the adoption of amendments. 40 

The significance of the bills and resolution dis¬ 
cussed above lies in the fact that there seems to be a 
desire, as well as a need, for a new constitution in 
the state; and if a new constitution is framed, it will 
in all probability contain many progressive features 
of taxation, among them the income tax provision. 

37 Interview with Senator L. E. Gwinn of Tipton. 

38 See Appendix. 

39 See Appendix. 

49 See Constitution. 


CHAPTER Vn. 


LOCAL TAXATION AND TAXATION FOR 
EDUCATIONAL PURPOSES. 

County and Municipal Taxation. 

Some suggestions have been made from time to time 
in this discussion relative to the relationship of the state 
with county and municipal taxation. It has not been 
possible in such limited space to give this important 
topic full consideration. But in order to clear up some 
questions which may arise in the reader’s mind, a 
brief summary of the present status of local taxation 
is here given from the federal report upon “Systems 
of Taxation.” 

County Revenues . “The property included and the 
assessment and equalization thereof are the same for 
county taxes as for state. 

“Exclusive of the tax for public roads, pikes, 
schools, and interest on the county debts and the taxes 
for other special purposes, the several county courts 
are authorized to levy an annual county tax on every 
$100 of taxable property, not exceeding 30 cents. 

“The collection for county taxes is the same as 
for state taxes. 

“The constitutional poll tax of $1 is collected by 
the county trustees and paid over to the school dis¬ 
tricts. 

“There is no county inheritance or corporation 
taxes. 

“Each county is authorized to levy a privilege tax 
upon merchants and upon other occupations declared 


LOCAL AND EDUCATIONAL TAXATION. 179 


to be privileges, not exceeding in amount that levied 
by the state for state purposes. The imposition of a 
privilege tax is not to be construed as an exemption 
from an ad valorem tax unless so specially provided. 

“Marriage licenses are $1, to be used for school 
purposes.” 

Municipal Revenues. “The property included and 
the assessment and equalization thereof are the same 
for municipal taxation as for state and county. 

“Municipalities of over 20,000 inhabitants have a 
tax rate of 15 mills on the dollar; 12,000 to 20,000, 
not to exceed 121/£ mills on the dollar; 5,000 to 12,000, 
not to exceed 10 mills on the dollar; under 5,000, not 
to exceed 7^ mills on the dollar. 

“The collection is the same as for state and county, 
except that municipal corporations having power under 
their charter to collect their own taxes on property, 
privileges, and polls, may provide therefor by ordi¬ 
nance. 

“The municipal poll tax is not to exceed $1. 

“There is no municipal inheritance or corporation 
taxes. 

“Each municipality is authorized to levy the same 
'privilege taxes’ as the state and county. 

“The several towns, cities, or communities in the 
state, the population of which does not exceed 30,000 
and the charters of the incorporation of which have 
been repealed or shall thereafter be repealed or abol¬ 
ished, are created taxing districts of the second class 
(and known by the name of the town or city at the 
time the corporation became extinct). 

“After the debts of the taxing districts have been 
compromised with the creditors, the commissioners 


180 


TAXATION IN TENNESSEE. 


may by ordinance levy taxes upon all property taxable 
for state purposes and upon all privileges and polls, 
to defray the expenses and pay the compromised debts. 
A tax of $1 on every $100 is levied on property and 
one on merchants equal to the state tax. 

“Provision was made for the creation of road- 
improvement districts 1 upon the application of 25 per 
cent of the freeholders residing within the territory 
of the proposed district, which are empowered to issue 
and sell interest-bearing bonds for the purpose of 
grading, and graveling, and improving the public roads 
within the district. The board of road-improvement 
district commissioners fixes the rate for paying the 
interest on and retiring said bonds at maturity. This 
tax is in lieu of all others for road purposes within 
the district. The county courts may issue bonds for 
highway purposes in the county, said issue to be rati¬ 
fied by two-thirds of the voters of the county, a tax 
to provide for such bonds to be levied by the county 
courts. 

“Municipal corporations may impose a license of 
not to exceed $20 per day for each day transient mer¬ 
chants are engaged in carrying on their business.” 2 

Taxation for Public Education. 

General Statement. The responsibility of edu¬ 
cating the children rests with the state. Every child 
within its borders is entitled to as good educational 
opportunities as the state can afford. Most states have 
recognized this fact, at least in a limited way, and are 

1 Acts 1913. See Federal Report of Systems of Taxation. 

2 Taxation and Revenue Systems. 


LOCAL AND EDUCATIONAL TAXATION. 181 


providing for a minimum school term by taxation. 
While much has been done in this direction, yet much 
remains to be done before any state can give an ap¬ 
proximately equal opportunity to all the children. 

Every legislature, not only in Tennessee, but in 
practically every state in the union, is confronted with 
the problem of adjusting the school laws for the pur¬ 
pose of increasing the revenue for educational pur¬ 
poses and distributing such revenue with a view to 
aiding counties and communities in the education of 
their children. Laws that are passed at one session 
of the legislature are repealed or amended at the next 
term, in an attempt to secure better educational ad¬ 
vantages for all the children of the state. Sometimes 
it happens that, in an effort to secure better educational 
opportunities than the present methods of distribution 
will afford, certain districts or communities seek relief 
through local legislation by creating independent dis¬ 
tricts. In such cases the boundaries are carefully 
arranged with a view to giving the children of those 
communities better educational opportunities than are 
enjoyed by the children on the outside of their borders. 
This practice creates still greater inequalities in oppor¬ 
tunity. 

As a general proposition, large towns and cities 
located in a county have their school systems entirely 
separate from that of the counties and vote extra tax 
levies above that levied by the counties, in order to 
give their children better educational advantages. 
Sometimes such towns and cities will use much influ¬ 
ence to keep the county tax rate low, because they 
realize that, as a rule, a town will contribute more 


182 


TAXATION IN TENNESSEE. 


to the education fund of the county than it will receive 
in return, as based upon the scholastic population. 
This is a gross injustice to the surrounding country. 
Where does the town get its wealth? What would 
be the fate of the town if its corporate limits should 
suddenly rise up forming a great wall and shutting out 
the rural sections? It requires no argument to show 
that the town is a visible representation of the sur¬ 
rounding territory from which it draws its wealth 
and that it is just and right to tax it to help educate 
the children of that territory. 

Nashville, Memphis, and other cities of Tennessee, 
draw their wealth not only from the counties in which 
they are located, but from much larger areas, and the 
state rightfully exacts of them a larger amount in 
school revenues than is returned to them on a scholas¬ 
tic basis. But is the state distributing this school fund 
so as to give the children of the surrounding territory 
educational opportunities equal to those enjoyed by 
the children of the cities? The average school term 
for every town of 2500 inhabitants in the state is 180 
days, while the average term for the rural districts 
of the state is only 110 days. It requires no argument 
to convince any fair minded thinking man that this 
condition should not prevail. 

But what is true in this respect in Tennessee is 
none the less true, in a measure, in every state of the 
union. It may be said to the credit of the cities, how¬ 
ever, that some of them will give a heartier support 
to legislation tending to eliminate these inequalities, 
than will the representatives from the counties that 
would be benefited by such laws. It is not a fault, 


LOCAL AND EDUCATIONAL TAXATION. 183 


then, of the cities so much as a defective adminis¬ 
trative system. 

Strong argument for some form of national aid 
to help equalize similar differences between the states 
could be made on the ground that New York City 
represents the visible wealth of, not only New York 
State, but of many states. Memphis draws its wealth 
from Tennessee, Arkansas, Mississippi, and western 
Kentucky, while Tennessee receives all the revenues 
from taxation derived from the wealth and business 
of the city. However, it is not the purpose of this 
thesis to discuss the advantages of national aid for 
educational purposes, but it seems only fair that the 
rural sections of the nation should receive their propor¬ 
tional part of the school revenues from the larger 
centers of industry, such as New York, Chicago, Phila¬ 
delphia, San Francisco, etc., for these business centers 
are built up in a large part by the rural sections. 

No state has yet succeeded in finding a solution 
to the problem of giving equal educational advantages 
to all the children of the state. No method in use has 
been sufficient to reach every needed condition in the 
country. A recent survey of the Alabama school 
system shows the vast inequalities in public education 
in that state. 3 Various plans of distribution are in 
use in the different states, the aim of which is to 
equalize as far as possible the advantages and burdens 
of education. A brief review of the development of 
the educational plans in Tennessee will reveal the 
nature of the system in this state. 

Historical Development. In 1873 the state and 

3 See 1919 Survey of Alabama School System. 


184 


TAXATION IN TENNESSEE. 


county systems were organized. Under the plan there 
were three district directors for each school in the 
state, and no two schools in the same civil district 
would likely run the same length of term. The terms 
varied from two to nine months. 

About 1900 the civil district was made the unit 
and all schools in the district were expected to run 
the same number of days. A district had three direct¬ 
ors, who were in charge of all schools, ranging from 
two to five or more in number. The schools in one 
civil district had no uniformity or connection with 
those of other districts. Each district received in 
return all that it had paid in for school purposes, after 
the Trustee had taken out his fee. Under this plan 
a wealthy district with few children might run the 
schools for nine or ten months in the year, with ease, 
while an adjoining poor district with a large number 
of pupils might not have sufficient funds for a three 
months’ term. 

In 1907 the County Board Law was enacted, and 
the county was made the unit for all schools in the 
county. Under the law the money is kept in a com¬ 
mon fund and distributed so as to run all the schools 
in the county the same number of days “as nearly as 
is practicable.” The general rule is to have a uniform 
term throughout the county, which is a long step in 
the right direction. In addition to securing a uniform 
term for the county the County Board Law has gen¬ 
erally improved the entire school system. Better 
teachers are employed and better school houses are 
being built. The consolidation of from two to three 
or even four small schools, taught by untrained teach¬ 
ers, has made over educationally and socially hundreds 


LOCAL AND EDUCATIONAL TAXATION. 185 


of communities. These things could not be done under 
the district system where three directors without 
technical training dictated the educational policies of 
the community,—employing teachers, providing equip¬ 
ment and facilities, such as were provided at all, etc.,— 
and where there was no opportunity to cross district 
lines in consolidating schools. 

It is almost universally agreed by students of edu¬ 
cation and state officials of school administration that 
the county is the logical unit for all local school organi¬ 
zation. Any smaller unit will work unusual hardships 
on certain sections of the county. While this is true 
in a general sense, it is especially true with regard to 
distribution of school funds. 

The State Funds . Tennessee has had a state school 
fund ever since the state was admitted into the Union 
in 1796. The original fund accrued from the sale 
of public land grants, and would have been sufficient, 
if properly managed, to maintain a good system of 
schools. But the state failed to realize early in its 
history the importance of the grants, and consequently 
the fund was lost to the state for many years. The 
fund was restored in 1873 with interest, the total 
amount at that time being $2,012,500 bearing 6 per 
cent interest. 

On account of the lack of school organization the 
state fund for many years failed to accomplish fully 
its purpose, which fact drew out much discussion and 
caused many bills to be introduced in each session of 
the General Assembly. As there were no state and 
county departments of education, the fund was appor¬ 
tioned by the State Treasurer to the county trustees, 
who in turn distributed it to the district directors of 


186 


TAXATION IN TENNESSEE. 


the different schools in the respective counties. The 
basis of the distribution was the scholastic population 
of from six to twenty-one years of age. 

The Constitution of 1870 provided that “the fund 
called the public school fund, and all the lands and 
proceeds thereof, dividends, stocks, and other property 
of every description whatever, heretofore by law ap¬ 
propriated, by the General Assembly of this state for 
the use of common schools, and all such as shall here¬ 
after be appropriated, shall remain a perpetual fund, 
the principal of which shall never be diminished by 
legislative appropriation; and the interest thereof shall 
be inviolably appropriated to the support and encour¬ 
agement of common schools throughout the state, and 
for the equal benefit of all the people thereof; and no 
law shall be made authorizing said fund or any part 
thereof to be diverted to any other purpose than the 
support and encouragement of common schools.” And 
as referred to in an earlier chapter, “The state taxes 
derived hereafter from polls shall be appropriated to 
educational purposes, in such manner as the General 
Assembly shall, from time to time, direct by law.” 4 

The Legislature of 1873, by authority of the con¬ 
stitutional amendment of that year, established a 
school system, providing for a State Superintendent 
and State Board of Education and county superin¬ 
tendents for the counties, whose respective duties were 
to look after the expenditure of state and county 
school funds. The state fund with interest amounted 
to $2,012,500, which was to be distributed by the State 
Superintendent to the respective counties on the 

4 Constitution of the State of Tennessee, Art. 11, sec. 12. 


LOCAL AND EDUCATIONAL TAXATION. 187 


scholastic population basis. By this important act the 
public school advantages derived directly from the 
state were in a small measure equalized. 

In order to still further equalize the educational 
opportunities of the children of each county, the Legis¬ 
lature passed a law in 1873 which provided for an 
annual tax of 15 cents on the $100 valuation on all 
taxable property in each county in the state; the money 
accruing from the tax was to remain in each county 
to be used as a county school fund. This was another 
attempt to equalize the opportunities of the children 
of the state by a compulsory tax rate for each county. 
A law enacted at the same time provided that any 
county may supplement the tax rate for school pur¬ 
poses, but that the total tax rate for elementary schools 
could not exceed that levied by the state for all pur¬ 
poses. 5 The funds, both state and county, were dis¬ 
tributed by the above act upon the scholastic basis. 6 

A part of the merchants’ tax has always, under the 
present constitution, been appropriated by statute for 
school purposes. The earlier acts designated about 
two-thirds of the merchants’ taxes for state purposes 
and one-third for school purposes. This was true for 
both ad valorem and privilege taxes. The privilege 
rate in 1881 was 30 cents on the $100 valuation of 
merchants’ property, and 10 cents of this was appro¬ 
priated for school purposes. In 1889 the total rate 
changed to 20 cents, and still 10 cents was used for 

5 Note: At present the maximum tax rate for county ele¬ 
mentary schools is 65 cents, and for high schools 20 cents on 
the hundred dollars valuation. 

« Acts of 1873. Also Court Reports 1876. 


188 


TAXATION IN TENNESSEE. 


schools. By acts of 1895 7 the privilege rate became 
15 cents, 5 cents of which was for school purposes. 
The ad valorem rate for the same time was 35 cents, 
15 cents of which was for school purposes. By acts 
of 1899 the total ad valorem rate was raised to 50 
cents, but only 15 cents were reserved for school pur¬ 
poses. The same act provided for the 15 cents of 
merchants’ privilege tax to be divided equally between, 
the state and schools. 8 These school revenues are 
retained in the county where collected. 

As a means of securing compulsory local taxation, 
the plan outlined in the two preceding paragraphs has 
certain advantages, but it was an undesirable single 
basis of distribution, because it failed to equalize either 
the burdens or advantages of education. Under such 
a plan of distribution the more property a community 
has, the more it will receive, regardless of the number 
of children to be educated. This violated the general 
principle that “the wealth of the state should help to 
educate the children of the state.” 

In 1903 an act was passed providing that at the 
end of each year all the state’s surplus should be dis¬ 
tributed to the respective counties on the basis of 
scholastic population. This sum, however, was not 
to exceed $300,000 per year. 9 Extravagant appropri¬ 
ations and expenditures by the politicians in the legis¬ 
lature finally reduced this sum considerably, until in 
1905 a bill was enacted into law, which set aside the 
sum of 75 cents per pupil of scholastic age. 10 While 

7 Extra Session. 

s Acts 1899, ch. 432. 

^ Acts 1903. 

10 Acts 1905. 


LOCAL AND EDUCATIONAL TAXATION. 189 


the state admitted its obligation to educate its children, 
it failed in this last act to provide a fund sufficient 
for that purpose. This condition of affairs aroused the 
thinking school men of the state, and caused the pas¬ 
sage of a law providing for a general education fund. 11 

The law creating the general education fund in 
1909 was carefully planned in a serious attempt to 
equalize educational opportunities, and increase the 
general fund with a view to creating a more efficient 
school system, not only by furnishing an increased 
amount of money for schools, but by supplementing 
the salaries of county superintendents and providing 
a subsidy for the benefit of county supervisors. The 
law sets aside one-third of the gross revenues of the 
state for educational purposes, which is divided as 
follows: (1) common schools, 61 cents; (2) equaliz¬ 
ing school fund, 14 cents; (3) high school fund, 9 
cents; (4) school libraries, 1 cent; (5) state normal 
school fund, 13 cents; (6) Polytechnic school fund, 
2 cents. The sixty-one per cent is apportioned to the 
several counties on the basis of scholastic population 
just as the permanent school fund of the state is 
apportioned. No part of this fund can be used for 
building purposes. 

The one-third of the gross revenues referred to 
above does not include the interest on the permanent 
school fund, derived from the $2,012,500. And the 
laws referred to do not prohibit the local districts from 
levying local taxes for the erection of buildings. The 
municipal levy cannot exceed the maximum rate speci¬ 
fied by the special act of the Legislature which grants 


11 Acts 1909. 


190 


TAXATION IN TENNESSEE. 


the taxing district. The levy for county school pur¬ 
poses cannot exceed the total amount of state tax levy 
for all purposes. 

Acts of 1913 provide that “for the purpose of 
school sites or the extension or enlargement of grounds 
upon which to build and provide school-houses or free 
public schools, and the necessary grounds appurtenant 
thereto, all municipal corporations owning, or which 
may in the future own, any public school or free public 
high school were given the right of eminent domain.’' 
The same acts provided that “municipalities or taxing 
districts having a population of 100,000 were author¬ 
ized to issue bonds for the purchase of land and erec¬ 
tion thereon of school buildings. * * *” 

One other law enacted previous to 1919 should be 
mentioned, which, however, has no special significance 
in connection with the educational system, except from 
a legal point of view. The General Assessment act of 
1907 12 provides that anyone intrusted with the collec¬ 
tion or disbursement of public funds or revenues, 
upon whom no penalty has already been imposed by 
the acts, upon conviction shall be fined not less than 
$50 nor more than $500, which fine shall be placed 
in the treasury for the benefit of the school fund. It 
is not known that this source of revenue has ever 
yielded any revenue for the benefit of education in 
the state. 

Recent Enactments for Educational Purposes. The 
attention of the State Department of Education was 
given largely to school legislation during the latter part 
of the recent session of the General Assembly. During 

12 Acts 1907, ch. 602, sec. 71. 


LOCAL AND EDUCATIONAL TAXATION. 191 


the last days of the Assembly there was practically no 
opposition to the passage of the educational measures, 
but the difficulty was to get the bills called up and 
placed on the calendar, because special orders had been 
set for practically every day in the session. Many 
bills failed to appear before the Assembly because of 
the crowded calendar. But through the influence of 
the leaders friendly to the interests of education, prac¬ 
tically all the educational bills which were introduced 
were passed. 

Senate bill 881, 13 known as an amendment to the 
General Education bill of 1909, provides (1) for a 
5 cent state tax for the equalization of opportunities 
in the rural counties. This equalization fund will 
amount to almost one half million dollars annually, 
which is distributed as follows: (a) one-third on 
scholastic population, (b) one-third equally among the 
counties, and (c) one-third to counties with less than 
seven months’ school term. The purpose in the last 
instance is to bring the school term up to a maximum 
of one hundred and forty days. 

Another main feature of the act is the provision 
for the distribution of the 14 per cent Equalization 
fund under the provisions of the old General Educa¬ 
tion Act of 1909, the distribution of which is made 
as follows: (a) Six per cent to county high schools, 
in addition to the nine per cent already provided, which 
makes a total of fifteen per cent for high schools. This 
distribution of funds is made similarly to the element¬ 
ary five cent tax—one-third equally to the counties 
of the state, one-third in proportion to the amount 


is Ch. 111. 


192 


TAXATION IN TENNESSEE. 


spent in high schools of the different counties, and 
one-third for the purpose of encouraging the establish¬ 
ment of first class high schools in all counties; (b) 
five per cent, or about $75,000, to aid in the employ¬ 
ment of county supervisors and the construction of 
consolidated schools, after the deduction of $33,000 
used to supplement county superintendents’ salaries; 
(c) two per cent to aid in the promotion of vocational 
education in the state. One per cent goes to the Poly¬ 
technic Institute, in addition to the two per cent it 
already receives. 14 

The next most important tax measure for public 
education passed by the recent session of the Assembly 
is the State Vocational Bill, which provides for a fund 
sufficient to match dollar for dollar the federal aid 
under the Smith-Hughes Act. 

In addition to the two important tax measures 
described above, a compulsory attendance law with 
“teeth in it” was enacted, which will ultimately react 
in the interest of other legislation for the support of 
public education in the state. The Compulsory 
Attendance Law provides (1) for the attendance on 
the part of the pupil for the entire school term, instead 
of for eighty days under the old law, (2) the age 
limit of seven to sixteen, (3) a truant officer in every 
county to be elected by the County Board of Educa¬ 
tion, (4) for the jurisdiction in cases affecting attend¬ 
ance to be under the Justice of the Peace in the rural 
sections, instead of the County Judge, as was provided 

14 All the above percentages are based on one-third of the 
gross revenues of the State. Acts 1919, ch. 111. 


LOCAL AND EDUCATIONAL TAXATION. 193 


by the old law, and (5) a fine for the violation of the 
attendance law. 15 

Early in the session a bill was passed giving the 
Governor power to appoint the State Superintendent 
of Public Instruction for a term of two years at a 
salary of $3600 per annum. The Governor under this 
act is ex officio member of the State Board of Educa¬ 
tion. 

Conclusion. Under the provisions of the recent 
acts upon the subject of education, the state will be 
able to attack the educational problems in a more defi¬ 
nite way than was possible under the preceding laws. 
First, provisions are made by the five cent tax levy 
for lengthening the school term in the rural districts 
from five and one-half months to seven months each 
year. Secondly, funds are provided to aid in the 
erection of consolidated schools, and the supervision 
of the rural schools. This will aid both in the saving 
of money and in the efficiency of the school system. 
And lastly, appropriations aggregating almost $100,000 
annually were made for vocational education in the 
state. Tennessee has made only a small beginning in 
the teaching of vocational agriculture to boys and voca¬ 
tional trades and home economics to both boys and 
girls. These large appropriations will secure an equal 
amount of funds for vocational purposes from the 
Federal Vocational Fund. Many boys and girls have 
been handicapped for life because they were not fur¬ 
nished an opportunity in their early life to learn a 
profitable trade. The movement which is now on in 
this direction will doubtless add largely to the earning 


15 Acts 1919, ch. 143. 


194 


TAXATION IN TENNESSEE. 


capacity of the boys and girls of the state and better 
equip them for economic and social service. When 
we consider that the wealth of the state depends 
largely on the earning capacity of its citizenship, it is 
easy to see that the State Legislature made wise pro¬ 
vision in arranging for this important work. 


APPENDIX A. 


PROVISIONS GOVERNING TAXATION IN 
TENNESSEE’S CONSTITUTIONS. 

I. Provisions for Taxation in Constitution of 

1796. 

Article I., Section 26. All lands liable to taxa¬ 
tion in this state, held by deed, grant, or entry, shall be 
taxed equal and uniform, in such manner that no one 
hundred acres shall be taxed higher than another, ex¬ 
cept town lots, which shall not be taxed higher than 
two hundred acres of land each; no freeman shall be 
taxed higher than one hundred acres and no slave 
higher than two hundred acres on each poll. 

Article I., Section 27. No article manufactured 
of the produce of this state shall be taxed otherwise 
than to pay inspection fees. 

II. Provisions for Taxation in Constitution of 

1834. 

Article II., Section 28. All lands liable to tax¬ 
ation, held by deed, grant, or entry; town lots, bank 
stock, slaves between the ages of twelve and fifty years, 
and such other property as the Legislature may from 
time to time deem expedient, shall be taxable. All 
property shall be taxed according to its value, that 
value to be ascertained in such manner as the Legisla¬ 
ture shall direct, so that the same shall be equal and 
uniform throughout the state. No one species of prop- 


196 


APPENDIX. 


erty from which a tax may be collected shall be taxed 
higher than any other species of property of equal 
value. But the Legislature shall have power to tax 
merchants, pedlars, and privileges, in such manner as 
they may from time to time direct. A tax on white 
polls shall be laid, in such manner and of such amount 
as may be prescribed by law. 

Article II., Section 29. The General Assembly 
shall have power to authorize the several counties and 
incorporated towns in this state to impose taxes for 
county and corporation purposes, respectively, in such 
manner as shall be prescribed by law; and all property 
shall be taxed according to its value, upon the prin¬ 
ciples established in regard to state taxation. 

Article IV., Section 1. All freemen of color 
shall be exempt . . . from paying a free poll tax. 

III. Provisions for Taxation in Constitution of 
1870. 

Article II., Section 28. All property, real, per¬ 
sonal, or mixed, shall be taxed; but the Legislature 
may except such as may be held by the State, by coun¬ 
ties, cities, or towns, and used exclusively for public 
or corporation purposes, and such as may be held and 
used for purposes purely religious, charitable, scien¬ 
tific, literary, or educational, and shall except one 
thousand dollars’ worth of personal property in the 
hands of each taxpayer, and the direct product of the 
soil in the hands of the producer and his immediate 
vendee. All property shall be taxed according to its 
value, that value to be ascertained in such manner as 
the Legislature shall direct, so that taxes shall be 


APPENDIX. 


197 


equal and uniform throughout the State. No one 
species of property from which a tax may be collected 
shall be taxed higher than any other species of prop¬ 
erty of the same value; but the Legislature shall have 
power to tax merchants, peddlers, and privileges in 
such manner as they may from time to time direct. 
The portion of a merchant’s capital used in the pur¬ 
chase of merchandise sold by him to nonresidents, and 
sent beyond the State, shall not be taxed at a rate 
higher than the ad valorem tax on property. The 
Legislature shall have the power to levy a tax upon 
incomes derived from stocks and bonds that are not 
taxed ad valorem. All male citizens of this State over 
the age of twenty-one years, except such persons as 
may be exempted by law on account of age or other 
infirmity, shall be liable to a poll tax of not less than 
fifty cents nor more than one dollar per annum; nor 
shall any county or corporation levy a poll tax exceed¬ 
ing the amount levied by the State. 

Article II., Section 29. The General Assembly 
shall have power to authorize the several counties and 
incorporated towns in this State to impose taxes for 
county and corporation purposes respectively, in such 
manner as shall be prescribed by law; and all property 
shall be taxed according to its value, upon the princi¬ 
ples established in regard to State taxation. 

Article II., Section 30. No article manufac¬ 
tured of the produce of this State shall be taxed other¬ 
wise than to pay inspection fees. 


APPENDIX B. 


GOVERNORS’ MESSAGES TO THE 
GENERAL ASSEMBLY. 

I. 

Message of Governor Tom C. Rye. 

To the Members of the Sixty-first General Assembly: 

I avail myself of a constitutional right and of the 
very high personal and official privilege of submitting 
for your consideration a message dealing with the 
financial operations of the State government during 
the four years of my incumbency of the office of Gov¬ 
ernor. 

For many reasons I have chosen the question of 
State finance and my official relation thereto ak the 
sole theme for discussion in this communication to you. 
It is my purpose to make a full, frank and fair state¬ 
ment of conditions at the beginning of my first term 
and as they now exist; to trace, if possible, present 
financial difficulties back to their beginning; to make 
such a statement of facts as will answer many grossly 
unfair statements and inferences by the critical with 
reference to our fiscal affairs and my official responsi¬ 
bility for present conditions. I hope to be able to con¬ 
tribute something of value to help you reach a solution 
of a problem that has been the cause of very grave 
concern during the four years I have been your Chief 
Executive. 


APPENDIX. 


199 


I shall not undertake to advise, suggest or recom¬ 
mend a remedy for the ills and defects which inhere in 
our financial system. This responsibility rightfully 
rests with and will be cheerfully assumed by the able 
gentleman whom the people have chosen to succeed 
me as Chief Executive and who, in my judgment, is 
pre-eminently qualified for dealing with this as well as 
all other important questions affecting the interests of 
the Commonwealth, and it will be his pleasure to fur¬ 
ther advise and direct the course of legislation with 
reference to our financial system. 

That the State Treasury was not receiving adequate 
revenue to meet governmental expenses and perform 
needed functions and activities properly belonging to 
the State was recognized by that very notable State 
Democratic Convention which assembled in this city 
in 1914. That the system of assessing and equalizing 
property assessments for purposes of taxation was in¬ 
effective and impossible of just and equitable applica¬ 
tion was clearly recognized. In a very strong and 
forceful platform declaration, that convention placed 
the Democratic party on record in favor of a State 
Tax Commission with power and authority so central¬ 
ized as to make it possible through correct methods and 
proper administration to have a fair, just, equitable and 
full assessment of all forms of property. This plat¬ 
form committed the candidate nominated by that con¬ 
vention, when elected, to the selection of a commission 
to prepare a bill creating a tax commission and cloth¬ 
ing it with all proper and necessary powers. I was 
honored by the nomination of that convention and 
made an extended campaign throughout the State. I 


200 


APPENDIX. 


everywhere advocated the platform upon which I was 
nominated and called attention to the rapid decline of 
the State's finances and the remedy that our platform 
proposed. That campaign resulted in my election by 
a large popular majority. 

Soon after my inauguration as Governor I appoint¬ 
ed a commission, composed of five able and distin¬ 
guished citizens to prepare a bill creating a State Tax 
Commission. They spent many weeks in constant and 
arduous investigation and labor. They submitted a 
very able and comprehensive report and a series of bills 
which were duly transmitted to the General Assembly 
with a message from me strongly urging their passage. 
In an early message to the General Assembly near the 
beginning of the session I brought to the members' at¬ 
tention a deficit in revenue of more than $1,000,000.00 
during the four years of my predecessor’s administra¬ 
tion. It was pointed out that such deficits would con¬ 
tinue to appear until the fundamental need of supply¬ 
ing adequate revenue to run the State government had 
been provided. Although numerous messages were 
submitted to the General Assembly in which conditions, 
then existing, were frankly discussed and probable 
future conditions forecasted with reasonable accuracy 
—that body failed to take action and all the efforts 
of that session looking toward tax reform failed. 

In 1916 the Democratic party pledged itself anew 
to a just, equitable and correct system of assessing and 
equalizing property and obtaining revenue. To stand 
squarely abreast of the great Democratic party the Re¬ 
publican party also declared strongly and emphatically 
for a correct and just system of assessment and equali- 


APPENDIX. 


201 


zation of property for taxation. Both parties recog¬ 
nized the urgent need of such legislation. Immedi¬ 
ately following the organization of the two houses of 
the General Assembly of 1917 I submitted a message 
dealing with the financial condition of the State as the 
paramount problem of the session in plain and simple 
terms, illustrating and demonstrating conditions by 
computations that a child could understand. It was 
shown beyond any doubt or question that the whole 
volume of receipts would be absorbed, if applied to 
paying the interest on the State debt; Confederate pen¬ 
sions and maintenance of Soldiers’ Home; the fund 
due public schools on apportionment; the maintenance 
and operation of State institutions; judicial salaries; 
State prosecutions; Agricultural Department; State 
Highway funds and legislative per diem and expense. 
It was demonstrated that the payment of these large 
items would leave nothing to pay a great number of 
smaller items, including the salary and expenses of the 
Governor and the other departments; that the reve¬ 
nues would fall short of meeting fixed obligations and 
necessary governmental expenses in the sum of $1,045,- 
270.15. In this message the following statement oc¬ 
curred : 

“Today with our party pledges newly made for a 
thorough and business-like regulation of this impor¬ 
tant matter—facing a deficit in our revenues of large 
proportions—I call upon all of you who respect hon¬ 
orable obligations to be mindful of your public prom¬ 
ises and all that is implied therefrom. A grave fiscal 
problem is presented for your solution. The material, 
moral and social welfare of a great State and of a 


202 


APPENDIX. 


great people will be advanced or held back just in ac¬ 
cordance with your action.” 

Referring to a deficit then existing, or which would 
exist before March 19, 1917, of $1,025,132.34, it was 
further stated: 

“There must be some means provided for the pay¬ 
ment of this deficit. A great State cannot afford to 
have its paper discounted, peddled or refused. The 
State, like any honorable citizen who values his busi¬ 
ness standing and personal honor, should be able to 
pay its bills promptly or name the day whereon they 
will be paid.” 

In other messages the details of receipts and dis¬ 
bursements were entered into and every effort made to 
furnish information about our fiscal operations that 
would be of information and service to members. 

There was not a member of the last General As¬ 
sembly who did not fully understand that revenue 
receipts were far below necessary expenses and that 
this condition would continue until dealt with in a fun¬ 
damental way. They were urged to exercise economy, 
but warned that they could not hope to correct con¬ 
ditions by small, cheese-paring methods. The matter 
was kept constantly before the General Assembly by a 
series of urgent messages. In simple truth the majori¬ 
ty of the House members of the last General Assembly, 
where the committee bill received its quietus, looked 
the proposition over, viewed it from different stand¬ 
points—not being wholly able to disregard the personal 
and political consequence of its approval and decided 
to, in the somewhat inelegant expressive vernacular, 
“pass the buck.” 


APPENDIX. 


203 


If I had felt at any time since the General As¬ 
sembly failed to pass a revenue bill, either at its 1915 
or 1917 sessions, that the credit of the State was being 
impaired or that any degree of irreparable injury was 
being done, I would immediately have called an extra 
session and would have again endeavored to present 
the matter to the members in such light as to move 
them, if possible, to avert threatened injury to the 
State or hurt its financial standing. I was deeply anx¬ 
ious at all times, during both sessions of the General 
Assembly to see its members take appropriate action, 
looking to a correction of our financial system. My 
greatest disappointment was because of the spirit of 
indifference shown toward a matter wherein I felt that 
the good faith and fair promises of both our great 
political parties were involved. The wisdom of bor¬ 
rowing money for ordinary State governmental pur¬ 
poses may very properly be questioned. There are 
times, however, when borrowing seems a necessity. 
Borrowing for the development of great public enter¬ 
prises and institutions is a very common and, in or¬ 
dinary circumstances, a proper practice. The average 
business man does not consider borrowing as an evi¬ 
dence of financial instability or an indication of forth¬ 
coming bankruptcy. 

To hearten the timid, if there be any among you, 
let me state most positively that the great State of 
of Tennessee is neither bankrupt, financially embar¬ 
rassed, nor verging on financial ruin. To another class 
who may have received the impression that the sub¬ 
stance of the people is being extracted ruthlessly by 
tax gatherers and poured into the State treasury and 


204 


APPENDIX. 


wasted by an extravagant State government, composed 
of many useless officials and employes, assurance is 
given that Tennessee stands almost at the bottom of the 
list of States in the amount per capita from her citi¬ 
zens for governmental purposes and is one of the most 
economically administered State governments in the 
Union. Compared with all the States, North and 
South Carolina are the only ones that continue below 
Tennessee in the per capita cost of State government. 

The following tables of receipts and disbursements, 
taken from the books of the Comptroller, show fiscal 
operations for a period which began December 19, 
1914, and ends December 19, 1918. The difference be¬ 
tween receipts and disbursements on this closing date 
does not accurately tell the real story of financial con¬ 
ditions of this date. The amounts representing the 
difference between income and outgo will be materially 
modified by other statements in order to correctly as¬ 
certain actual conditions. 

RECEIPTS AND DISBURSEMENTS, 1915-1916. 
Cash received by Treasury from December 20, 


1914, to December 19, 1916.$10,249,484.90 

Cash disbursed in same period. 10,353,730.82 

Disbursements exceeded receipts.$ 104,245.92 

1917-1918. 

Cash received by Treasury from December 20, 

1916, to December 19, 1918.$16,193,659.21 

Cash disbursed in same period. 15,420,141.37 

Receipts exceeded disbursements. 773,517.84 

Excess of disbursements over re¬ 


ceipts, 1915-1916.$104,245.90 

Excess of receipts over disburse¬ 
ments, 1917-1918. 773,517.84 












APPENDIX. 


205 


Total excess of receipts over disbursements 

for four years. 669,271.94 

The foregoing assessments, taken from Comp¬ 
troller’s office, show that from December 
19, 1915, to December 19, 1918, receipts ex¬ 
ceeded disbursements. 669,271.94 


The totals above stated of both receipts and dis¬ 
bursements shown for the last two years are far in ex¬ 
cess of the amount actually raised by the collection of 
revenue and of the disbursements for general pur¬ 
poses of State government. The fiscal officers of the 
State borrowed on February 28, 1917, the sum of one 
million dollars to meet current expenses and obliga¬ 
tions. The six months’ note when due was paid, and 
its payment shown as a disbursement. The note was 
renewed and at maturity paid again and this process 
of borrowing and placing in receipts was again re¬ 
peated. In considering the statement of the treasury 
receipts by the Comptroller, it should be borne in mind 
that the amount of these various borrowings, amount¬ 
ing to three million dollars, and of payments by the 
process of making new notes to the extent of two mil¬ 
lion dollars should be eliminated both from receipts 
and disbursements. In the same manner funds derived 
from the sale of Hospital and Herbert Domain im¬ 
provement bonds, amounting to $380,000.00 and also 
funds collected and deposited for the use of the State 
Highway Department, amounting to $723,079.98, and 
funds of the University of Tennessee, $356,301.94 
should be deducted from receipts so as to make re¬ 
ceipts actually conform to the amount of funds col¬ 
lected from revenue sources. In like manner, disburse¬ 
ments should be reduced by payment out of these spe¬ 
cial funds. 




206 


APPENDIX. 


The results as shown by the Comptroller’s reports 
for the full four years ending December 19, 1918, make 
it appear that during this period receipts or income 
exceeded outgo by the sum of $669,271.94. This 
showing is subject to important modifications. There 
remain for final payment a number of appropriation 
encumbrances or obligations belonging to the last 
period for which appropriations were made by the 
General Assembly—that is from March 19, 1917, to 
March 19, 1919. 

In the following statement, which includes the items 
that will in the aggregate represent the amount of de¬ 
ficit in the revenues for the period, 1915-16-17-18, 
everything has been included that perhaps rightfully 
belongs in such a list. 

DEFICIENCY ITEMS, 1915-1918. 

One million dollar note, payable in March, 1919..$1,000,000.00 
Owe Highway funds, special taxes collected for 

highways . 585,611.03 

Owe Herbert Domain and Hospital Bond funds 228,670.92 
State Board of Education apportionment for 

last half of 1918 and interest on school funds 490,312.31 
Will owe Confederate pensions (estimated)... 300,000.00 

Total.$2,604,594.26 

The statement of the Comptroller shows that 
the receipts for four years exceeded dis¬ 
bursements $669,271.94; therefore, this 
amount, being on hand in cash December 
19, 1918, should be deducted from the 
total of the deficiency items, leaving the 
probable net amount of deficit.$1,935,322.32 

It is possible that there are items not in the fore¬ 
going statement that properly should be so included. 
If the deficit shall, therefore, be approximated at $2,- 
000,000.00, it will then very closely approach the esti- 






APPENDIX. 


207 


mate of what it should be, as shown in my message to 
the General Assembly two years ago, and will also no 
doubt cover any small items not in the foregoing list. 
This amount of $2,000,000.00 shows an average short¬ 
age of revenue of $500,000.00 per year. 

It will be found that the State Treasury and the 
institutions have not anticipated revenues, nor have 
they deferred payments of current accounts. There¬ 
fore, the succeeding administration will not be em¬ 
barrassed on that account. The institutions under the 
Board of Control vouched for payment every account 
that could be paid on December 15 and warrants were 
drawn before December 19, the date of closing the 
books by the Comptroller. 

If the first deficit in our revenues had appeared 
during the four years I have been Governor and if our 
failure to secure sufficient funds to meet the general 
expenses of State government were traceable to some 
wrongful act of omission of mine or to lack of busi¬ 
ness administration, or if the deficits were due to ex¬ 
travagance or general inefficiency, then I should justly 
be condemned as an inefficient and unfaithful public 
servant. 

* * * * * 

It is necessary to go back a good many years to find 
where disbursements first began to overbalance re¬ 
ceipts. When it was decided to increase the funds to 
public schools, to Confederate pensioners, to establish 
new charities, to have new governmental activities, it 
did not take long for the cost of government on this 
expanding scale to overtake and overbalance receipts. 
A statement from the Comptroller’s report shows: 


208 


APPENDIX. 


RECEIPTS AND DISBURSEMENTS, 1907-1908 

Cash received by Treasury from December 20, 

1906, to December 19, 1908.$7,266,341.77 

Cash disbursed in same period. 7,297,191.60 

Disbursements exceeded receipts.$ 30,749.83 

1909-1910. 

Cash received by Treasury from December 20, 

1908, to December 19, 1910.$7,243,099.86 

Cash disbursed in same period. 8,058,730.37 

Disbursements exceeded receipts.$ 815,630.50 

Excess of disbursements over re¬ 
ceipts, 1907-08.$ 30,749.83 

Excess of disbursements over re¬ 
ceipts, 1909-10. 815,630.50 

Total excess of disbursements over receipts. 846,380.33 

From this statement it will be seen that during this 
period, 1907-8-9-10, the cost of State government and 
its various activities had begun to largely exceed re¬ 
ceipts. 

The cost of State government pitched upon a scale 
of expenditures exceeding receipts continued through¬ 
out the succeeding four years, 1911-12-13 and 14, as 
will be shown by the following statement taken from 
the Comptroller’s report: 

RECEIPTS AND DISBURSEMENTS, 1910-1912. 


Cash received by Treasury from December 20, 

1910, to December 19, 1912.$8,735,068.19 

Cash disbursed in same period. 8,267,217.99 


Receipts exceed disbursements.$ 467,850.20 

1913-1914. 

Cash received by Treasury from December 20, 

1912, to December 19, 1914. 9,166,870.63 

Cash disbursed in same period. 9,779,579.97 


Disbursements exceed receipts.$ 602,709.34 




















APPENDIX. 


209 


Excess of disbursements over re¬ 
ceipts, 1913-1914.$602,709.34 

Excess of receipts over disburse¬ 
ments, 1911-1912. 467,859.14 

Excess of disbursements over receipts, four 

years, 1911 to 1914. 134,850.20 

To this amount, representing excess of disburse¬ 
ments over receipts for the four years, should be added 
a floating debt of one million dollars made up of out¬ 
standing claims and accounts that were filed with the 
Comptroller and belonged to the period for which the 
administration of my immediate predecessor was re¬ 
sponsible. The amount of these debts was covered, 
first, by short term notes and later funded into bonds 
upon which the present administration has been pay¬ 
ing the interest. 

In October, 1914, with expenses largely and stead¬ 
ily exceeding receipts—with a million dollar deficit for 
1913-14 visible and threatening—the State's fiscal of¬ 
ficials voluntarily and without legal compulsion paid 
and redeemed $200,000.00 of outstanding bonds. 

The redemption of bonds ordinarily is regarded a 
very laudable and commendable fiscal act. When there 
are surplus funds in a State treasury it is generally 
good business to buy and retire outstanding bonds, 
stop the interest and at the same time remove tempta¬ 
tion to spend surplus funds. I approve of the policy. 
In this particular instance, however, only a few weeks 
later the State had to issue bonds to pay debts to the 
extent of $1,000,000.00 that were, at the time these 
bonds were bought, practically due and payable. But 
a stronger point of objection I hold against this partic¬ 
ular transaction is, that in order to buy the bonds and 
pay the expenses of State government, they induced 





210 


APPENDIX. 


railroads, street railways, insurance, telegraph and tele¬ 
phone companies to pay their taxes in advance so that 
the taxes thus anticipated could be used for buying the 
bonds and paying expenses and also serve the further 
purpose of making a showing in the Comptroller’s re¬ 
port of cash receipts and cash in the treasury on De¬ 
cember 19, 1914. 

The taxes collected from the public service corpora¬ 
tions were not payable until after January 1, 1915, and 
of course their collection should have been shown 
where they rightfully belonged, to the year 1915—a 
part of the period with which this message deals. The 
amount of taxes anticipated from these sources 
amounted to $178,896.30. 

To this amount should be added the sum of $75,- 
791.08 shown as a loss by the penitentiaries, between 
December 19, 1914, and March 19, 1915, the date on 
which the Tennessee Board of Control assumed the su¬ 
pervision of these institutions. The penitentiaries, ac¬ 
cording to the Comptroller’s reports, had turned into 
the treasury from December 19, 1913, to December 19, 
1914, the sum of $70,950.51 in excess of all current 
expenses and disbursements. Between December 19, 
1914, and March 19, 1915, not only the average excess 
of receipts over withdrawals was lost to the treasury, 
amounting to $5,712.54 per month, but the withdrawals 
from the treasury exceeded receipts by the sum of 
$58,653.46. The penitentiaries in fact did not lose the 
money in this short period. The Board of Prison 
Commissioners who remained in control until March 
19, 1915, collected from customers of the Brushy 
Mountain Mines and from contractors at the Main 


APPENDIX. 


211 


Prison closer than in ordinary course of business, so 
that their deposits would show as heavy as possible on 
December 19, 1914, and in order to hold all money in 
the treasury until after the date for report postponed 
the payment of large amounts of past due accounts 
with the result stated before of a total loss in receipts 
to my administration of $75,791.08 which properly be¬ 
longed to it. 

The deficit for the four years ending December 19, 
1914, should be stated as follows: 

DEFICIT, 1911-1914. 

Excess of disbursements over receipts for four 


years, Comptroller’s report.$ 134,840.20 

Debts and obligations of this period, funded in 

bonds . 1,000,000.00 

Taxes collected in advance from public service 

corporations . 178,896.30 

Profits of penitentiaries and funds in Treas¬ 
ury used to pay old accounts at peniten¬ 
tiaries . 75,781.08 


Total deficit.$1,389,525.58 


It is my privilege to place before the General As¬ 
sembly and the public the facts respecting the financial 
operations of the four years I have been your Chief 
Executive. It is my right to show the effect on my 
own administration of any act of a previous adminis¬ 
tration, which may have had a bearing or influence 
upon it. The truth regarding the financial conditions 
respecting former periods and as they exist now, I trust 
may be valuable to you in determining your action on 
financial legislation. It will certainly help you to know 
that we have maintained a large average deficit during 
the past twelve years. 

The matters to which I have called attention are 








212 


APPENDIX. 


not unusual or outside of the experience of State of¬ 
ficials or of business men. The desire of the business 
man to show a good balance in cash at the end of the 
business year when the books are closed, or of the 
State or institutional official to show a good balance on 
the date when the books close for biennial reports is 
natural. That they often yield to the temptation to 
make a good showing at the expense of a future period 
by swollen inventories or an abnormal cash balance is 
unfortunately true. 

TAXES ON WHOLESALE AND RETAIL LIQUOR 
DEALERS, BREWERS AND DISTILLERS. 

Collected by county court clerks and state 

revenue agents, years 1907-8-9-10.$ 736,598.86 

Collected by county court clerks and state 

revenue agents, years 1911-12-13-14. 1,144,018.49 

Collected by county court clerks and state 

revenue agents, years 1915-16-17-18. 22,116.04 

Let us suppose that during the four years from 
1907 to 1910 the taxes derived from liquor revenue 
sources during that period had been withdrawn from 
receipts altogether and suppose this to have been done 
for the next two successive periods, that is, 1911 to 
1914 and 1915 to 1918. 

The effect on the deficit for the first four years 
would have been that the receipts, reduced by the 
amount of the liquor taxes, $736,598.86, would have 
caused a corresponding increase of the deficit for the 
period; therefore, the deficit for 1907-10 would have 
been $1,582,979.20. 

The effect on the second period would have been 
to reduce receipts by the amount of liquor taxes, $ 1 ,- 
144,018.49, and correspondingly increase the deficit 





APPENDIX. 


213 


for this four years, 1911-14, therefore the deficit with¬ 
out revenue from liquor sources would have been for 
the four years, 1911-1914, $2,533,555.01. 

The effect on the third period for which I am re¬ 
sponsible would have been to reduce receipts by the 
amount of liquor taxes, $22,116.04, and correspond¬ 
ingly increase the deficit for the period of four years, 
1915-18. Therefore the deficit would have been $2,- 
022,116.04. 

In view of the fact that no district legislative act 
for increasing revenue has been enacted for many 
years and that our slight increases in receipts have been 
due almost entirely to the general growth of our busi¬ 
ness; therefore, the receipts of revenue from whiskey 
sources during the first two periods was a very large 
and important factor in the finances of those periods. 
The loss of all this big volume of revenue save an in¬ 
significant sum picked up during my four years’ period, 
has been also an important factor. It had an impor¬ 
tant bearing on the reduced receipts of my four-year 
period. Had the receipts of the four-year period been 
augmented by a sum equivalent to the amount collected 
from liquor sources during the 1911-14 period, the 
deficit of the present period would now be less than 
$900,000.00 for the four years. 

I have shown you that back as early as 1907 we 
began to spend more than we received. I trust, how¬ 
ever, it may not be implied from my statements with 
reference thereto that in the periods 1907-10 and 
1911-14 that the large excess amounts over receipts 
were improperly or wastefully spent. I know that dur¬ 
ing the first of the periods the State Reformatory was 


214 


APPENDIX. 


built or begun, also the State normal schools, and 
expensive equipment purchased for the coal mines 
owned by the State. During the second period there 
were many important, constructive legislative enact¬ 
ments, creating and enlarging useful State activities. 
All of these things called for additional funds. 

A list of items is furnished herewith showing the 
purposes for which the funds of the State have been 
used for special and extraordinary purposes. Many 
were provided for by special appropriations, while a 
great number were paid out of the funds appropriated 
for maintenance of the patients, inmates and pupils 
of institutions. To make such payments possible the 
greatest economy of maintenance funds was required. 

You have been shown that there is or will be be¬ 
fore March 19, 1919, a deficit in the revenues provided 
for the appropriation period of four years, amounting 
approximately to two million dollars. 

Believing that it will be both interesting and in¬ 
structive for you to know how this money has been or 
will be spent, I shall undertake to give items of ex¬ 
traordinary expenses and explain those of greatest im¬ 
portance. 

MONEY REPRESENTED BY DEFICIT, INVESTED 
AND USED IN MANY WAYS. 

Payments on notes and interest, Baxter farm. .$ 

Interest paid on notes and bonds for the one 
million dollars debts of preceding adminis¬ 
tration . 

Bonds paid and redeemed, as per terms of set¬ 
tlement, 1917. 

Bonds paid and redeemed, as per terms of set¬ 
tlement, 1918 . 

Vocational Reformatory for Girls, various ap¬ 
propriations for buildings and equipment, 

Acts 1915. 


143,459.60 

133,400.00 

150,000.00 

150,000.00 

113,344.68 






APPENDIX. 215 

Extra session of Legislature, 1916, Impeach¬ 
ment Session. 39,472.79 

Expenditures for enforcing prohibition laws... 6,598.40 

Tennessee State Penitentiary. 

Tuberculosis Hospital buildings and equipment 40,173.45 

New machinery and building repairs, new roofs 
on buildings, ventilation system, dairy build- 

_ ing . 26,911.26 

Filtration plant, new stockade, shoe machinery. 14,430.47 

State Training and Agricultural School for Boys. 
Purchase of lands, bath and laundry work 

building. ...., . 22,745.37 

Planing mill machinery, shoe machinery, sewer 

line, fire equipment. 7,038.63 

Laundry machinery, isolation hospital building, 

furniture and hospital furnishings, tractor.. 5,871.45 

Mules and dairy cows, silos, wagons, plows, 

rent on land. 7,031.55 

Western Hospital. 

Dynamos, motors, pipe line, engine, founda¬ 
tions, furnishing and finishing Annex 

(Hooper) . 16,383.88 

General repair and improvement, operating 

equipment, steam plant and ice machinery.. 15,399.13 

Gravel road Bolivar, roof and gutter, picture 

machine, rent of lands. 3,024.51 

Appropriation for machinery, for wells, mules 

and equipment, boiler, laboratory equipment 4,569.97 

Central Hospital. 

Finishing and furnishing new wing (Hooper), 

hydrotherapy equipment, silos. 8,778.46 

Old buildings rebuilt and repaired, laundry ma¬ 
chinery, and equipment, picture show. 18,940.51 

Concrete floors and general repairs, mules, ve¬ 
hicles, laboratory equipment and dairy cows. 4,877.31 

Eastern Hospital. 

Laundry machinery and equipment, steam 
plant, general repairs and equipment, dairy 

cows . 17,046.17 

Dairy barns, repairs to wall of wing, mules, hot 

water boiler. 2,212.18 

Furniture, wagons and vehicles, fence and farm 

machinery, picture show. 3,104.73 














216 


APPENDIX. 


Tennessee Industrial School. 

Fire escapes, printing office equipment, lot in 
cemetery, furniture and repairs. 

Tennessee School for the Blind. 
New floors, furnishings and repairs, pianos and 
musical instruments, rent of building, gen¬ 
eral repairs. 

Pensions to Confederate soldiers and widows, 
increased amount already paid in 1915-16-17- 
18 in excess of amount paid on this account 

in 1911-12-13-14. 

Amount paid to maintain Boys’ Reformatory in 
1915-16-17 and 18 in excess of amount paid 
for maintenance in 1911-12-13 and 14 (insti¬ 
tution opened in 1912). 

For maintaining wayward and delinquent girls 
in private institutions at fifty cents per day 
(1915-16-17 and 18)—first authorization by 

legislature of 1915. 

For operating workshops for adult blind (act 

of legislature, 1917). 

Tennessee Polytechnic School buildings, appro¬ 
priation . 

Services of lawyers, contracts under previous 

administration. 

Salaries and expense of State Rangers. 

Monument for Confederate women. 

Difference in cost of maintaining insane pa¬ 
tients in hospitals, 1911-12-13-14 and 1915- 
16-17 and 18, due to increased quota of State 

patients and increased per capita. 

Difference in amount of merchandise and sup¬ 
plies on hand and paid for in the commis¬ 
saries, stores and supply rooms when taken 
over by the Board of Control, March 19, 
1915, and December 19, 1918. 

Tennessee School for Deaf and Dumb. 
Plumbing and shower bath, printing machinery, 
refurnishing and general repair. 

Brushy Mountain Penitentiary. 

For general rehabilitation of plant and equip¬ 
ment in 1915. 

New machinery for additional power, coal cut¬ 
ting machinery, pumps and other equipment, 
not for replacement, 1918. 


23,288.05 

17,151.13 

576,650.87 

225,432.15 

45,528.70 

10,664.94 

22,924.26 

31,289.66 

5,360.00 

6,666.66 

318,993.05 

186.608.51 

13,031.52 

43,996.75 


66,027.74 

















APPENDIX. 


217 


In addition to the foregoing items paid for 
out of special appropriation are many items 
of equipment paid for out of maintenance or 
per capita funds or earnings, some of which 
are as follows: 

Western Hospital. 

Live stock, farm equipment and permanent im¬ 


provements . 16,581.43 

Eastern Hospital. 

Furniture, furnishings, machinery and equip¬ 
ment and repairs. 11,771.41 

Central Hospital. 

Machinery, farm equipment, live stock, fur, etc. 7,857.43 

Deaf and Dumb School. 

Machinery, furniture, live stock. 1,421.77 

Blind School. 

Floors, furniture, school equipment, etc. 3,425.51 

Reformatory for Boys. 

Wagons, vehicles, silo, farm machinery, fur¬ 
niture . 7,458.06 

Tennessee State Penitentiary. 

For buildings, operations, permanent improve¬ 
ments in farm and in prison. 27,280.00 


$2,677,600.52 

The Baxter farm was bought wholly on time. The 
first payments were made in the year 1915. It was a 
splendid purchase and is a valuable asset to the State. 

The item of interest on the deficit of $1,000,000.00 
under former administration of course had to be paid 
at the agreed rate of interest when bonds issued. 

The State debt was settled under the authority of 
an act of the General Assembly of 1915, and is to be 
paid in forty annual payments, the first two of which 
were paid when due, as shown in the foregoing list. 
We have paid the interest on short term loans, and on 









218 


APPENDIX. 


the State debt proper represented by bonds to the 
amount of $2,365,463.33. 

The Legislature authorized the establishment of a 
reform or vocational school for delinquent girls. It 
fills a long-felt want and when provided with neces¬ 
sary room will greatly relieve many cities and com¬ 
munities who have the delinquent girl problem in very 
acute form to deal with. 

The money spent for enforcement of prohibition 
laws yielded results commensurate with the outlay and 
at least served as a check on the activities of law¬ 
breaking in the State. 

The appropriation for building the tuberculosis hos¬ 
pital at the penitentiary and maintenance thereof en¬ 
ables the authorities to keep prisoners afflicted with 
the disease under surroundings and in circumstances 
most favorable for relief and cure. Many have been 
cured and hundreds of lives of prisoners, no doubt, 
have been saved by promptly removing the afflicted 
ones from among those who are not afflicted, but who 
would run that risk if forced into association with 
those who have the disease. A well-known authority 
on social work said of Tennessee, in a public address, 
“That is the State where an indigent person afflicted 
with tuberculosis must commit a felony and be sent to 
the penitentiary in order to receive proper treatment.” 
The investment in this institution is yielding its daily 
results. There is just cause for pride in the fact that 
prisoners in Tennessee can be treated successfully for 
the great white plague. The investment is approved 
by everyone familiar with the old conditions and 
capable of right thinking. The General Assembly of 


APPENDIX. 


219 


1915 caused an examination of prisoners to be made 
and received a report that about four hundred were 
afflicted. A ventilation system enables the prisoners 
to get pure air in their cells and in their lungs at night. 
A filtration plant for filtering the water for bathing 
purposes was a necessity. 

A stockade building of concrete comfortably and 
safely houses the prisoners who work on the farm, 
taking the place of an unsafe and unsanitary wooden 
building, dangerous alike to life and health, and on 
account of its dilapidated condition, a constant invita¬ 
tion to fire. 

A new dairy barn takes the place of one thoroughly 
affected with tuberculosis. It is modern and a credit 
to the State. 

The Boys’ Reformatory needed lands. One hun¬ 
dred and twenty-three acres were bought adjoining the 
original property. They needed still more land and on 
authority of the last General Assembly half of them 
are now on the Herbert Domain* expanding the cleared 
spaces at the rate of several acres per week by uproot¬ 
ing and removing the timber and making ready for 
cultivation. The machinery and equipment bought for 
this institution was urgently called for and supplying 
it was an absolute necessity. 

The improvements at the hospitals were requested 
because of the belief that they were necessary. , Many 
items appropriated were not fully used. The property 
and equipment purchased for all the State institutions 
supplied only the more pressing needs. A casual visit 
will disclose the need of many things that would add 
to the comfort, help to promote and advance the aims 
of the institutions and make for greater economy. 


220 


APPENDIX. 


Brushy Mountain Mines were found in a sadly 
run-down state in 1918, according to the report of 
Chief Mine Inspector Shiflett, Mine Superintendent A. 
W. Evans and Warden W. M. Nixon. The process of 
putting them in operating condition was costly in labor 
and money. The expenditures for new machinery in 
1917 and 1918 were necessary in order to have the 
power equipment in condition for larger production. 
The mines will be found in good condition and the 
money spent in overhauling machinery inside and out 
has been well spent. 

The large increase in pensions to soldiers and their 
widows over the amount appropriated for them during 
the four years preceding my term was and is due to the 
fact that everyone, irrespective of political belief, 
wished and desired to serve these grand old men by 
giving in full measure to supply their wants. This, I 
am gratified to know, was the disposition of both 
General Assemblies with which I have been officially 
associated, and the man will yet have to appear who 
would be willing to raise his hand or lift his voice in an 
effort to withhold from the Confederate soldier that 
which we feel and know justly belongs to him. 

The items for maintaining the delinquent girls in 
private institutions was authorized to be paid for their 
care until the Vocational Reformatory could be opened. 

Workshops for the adult blind are being success¬ 
fully conducted in many States. The legislature justly 
and wisely, in my opinion, authorized the experiment 
here, and I trust it will be continued and perfected. 

The State gave to the Polytechnic School, at Cooke¬ 
ville, a small part of the funds for building; the town 
and county furnished the larger portion. 


APPENDIX. 


221 


The legislature appropriated money to commemo¬ 
rate the splendid part taken by our mothers in Tennes* 
see in the Civil War. The sum appropriated was mod¬ 
est indeed. I do not believe anyone will grudgingly 
make up his portion of our deficit because of this item. 
I do not hesitate to say that, personally, I would be 
willing to increase that deficit, if necessary, in order 
to provide a suitable monument, not only for our wom¬ 
en of the Civil War, but for our women of the world 
war, in honor of their splendid spirit and unselfish 
sacrifice during the world’s crisis, through which we 
have successfully passed, nor would I stop there, but 
would go even further and give ungrudgingly to the 
erection of a suitable monument to commemorate the 
bravery, courage and self-sacrifice of the boys of Ten¬ 
nessee who have so recently enriched and ennobled the 
glorious history of our Commonwealth by their un¬ 
selfish, patriotic contribution to the glorious victory 
achieved for God and humanity on foreign soil. 

Second largest is the item of $318,993.05, which 
represents an increase by that amount for the present 
four years over the years 1911-12-13-14 for maintain¬ 
ing State-paying patients in our three hospitals for the 
insane. During the four-year period ending December 
19, 1914, the three hospitals maintained a daily average 
number of State-paying indigent patients of 1,601; the 
present period, or that which ended December 19, 1918, 
maintained a daily average number of 1,938 State-pay¬ 
ing patients. The increase was due primarily to an in¬ 
creased number of insane, but principally to the fact 
that the General Assembly of 1913 provided that in¬ 
digent patients to the number of one for every one 
thousand of a county’s population, instead of one for 


222 


APPENDIX. 


every eighteen hundred, as the legal basis was before. 
The increase due to the increased number of patients is 
$154,321.41. The balance of $164,671.62 was due to 
the higher cost of living. The' General Assembly of 
1917 increased the per capita from $135.00 per year 
to $180.00 per year. But for the most careful manage¬ 
ment and the practice of rigid economy the cost of 
maintaining the hospitals would have greatly exceeded 
the modest allowance of fifty cents per day, which in¬ 
cludes food, clothing, fuel, water, light, attendants, 
physicians and many other expenses. The increase in 
per capita was only 30 per cent, while the general in¬ 
crease of commodities and of living expenses is from 
80 per cent to 100 per cent. 

That these various items of governmental expense 
were needed and necessary for proper maintenance and 
support of the different institutions for which they 
were created, I have no doubt that strictest economy 
and good business judgment were exercised by those 
charged with the duty of creating these obligations. I 
am satisfied and I am confident that in the payment 
and discharge of these obligations as well as the dis¬ 
bursing of all funds for State expense, the closest scru¬ 
tiny and most careful precautions have been exercised 
by the officials in charge with this responsible duty. 

I have shown the receipts of the State Treasury 
and the disbursements therefrom for three consecu- , 
tive four-year periods. It will hardly be denied that 
the process of spending for governmental purposes and 
activities more money than was being received began 
in 1907-08 and continued to the present with slight 
tendency to increase both in receipts and expenditures. 
That the deficit during the four years ending December 


APPENDIX. 


223 


18, 1918, or as it will be when the payments belonging 
to the period have been made, is not larger is surpris¬ 
ing. The tax on liquor dealers and breweries that 
brought to the four-year period 1907-10 over $700,000, 
and to the period 1911-14 over $1,140,000.00, has 
brought less than twenty-five thousand all told since 
December 19, 1914. The loss of the revenue from this 
source has not been regretted by the good citizens of 
the State, but when it was so often urged that it would 
no longer be counted as a source of revenue, provision 
should have been made to supply its loss. 

The deficit for the period 1915-16-17-18 under nor¬ 
mal conditions might and no doubt would, have been 
much larger than it is. The last two years of abnor¬ 
mal demand for fuel and of the unusually high prices, 
together with the exercise of good judgment and sound 
business methods by the supervisory powers, and by 
the mine management has enabled that institution to 
turn into the State Treasury, during the last two years, 
cash in excess of withdrawals, amounting to $821,- 
194.31, besides making investments in rehabilitation 
and improvements of more than $75,000.00. 

The State finances have been helped and protected 
by the Tennessee Board of Control during this period 
by the purchase of supplies, material and equipment 
at the lowest competitive prices, which manufacturers, 
jobbers and dealers are willing to give to the State 
when purchases or contracts are for large quantities. 
Had the purchasing been done in the same old way by 
the careless and indifferent representatives of the dif¬ 
ferent boards of control which were formerly in charge 
of the nine institutions, and which the Tennessee 
Board of Control succeeded, the goods and supplies 


224 


APPENDIX. 


purchased and contracts made, amounting to nearly 
three million dollars for the period of forty-five 
months, would have cost the State not less than a half 
million dollars more than was paid for them. 

The Board of Control has not only saved in the 
purchase of supplies, but enforcing methods for the 
conservation of supplies and in the direct supervision 
and stimulation of the production of farms, mines, fac¬ 
tories and shops has greatly added to production 
and profits from their operation of State enterprises. 
Had not the Board of Control been in charge of this 
work, and had the institutions proceeded in the old way 
under eight different, unrelated, separate Boards of 
control, only one of which received pay for the services 
of its three members—had each board bought the 
daily or monthly institution wants from nearby re¬ 
tailers or from good friends, and each permitted the 
continuance of loose, careless, wide-open, unbusiness¬ 
like methods as regards extensions of credits, collec¬ 
tion of accounts, conservation of material, production 
of supplies and other things used by the State, today 
the deficit of the four years set down at $2,000,000.00 
would have been at least one million dollars more. 

In the message to the General Assembly two years 
ago we sought to show that Tennessee in comparison 
with other States was lightly taxed. We expressed the 
hope that if the members would realize how really 
small and trifling a shortage of $500,000.00 per year is 
for a great State to make up that they would not hesi¬ 
tate to make or fall on some simple plan for making 
the different classes of property each yield its little bit 
and keep us out of debt, and at the same time provide 
for reasonable activities along progressive lines. 


APPENDIX. 


225 


Tennessee, in June, 1917, was estimated to have a 
population of 2,288,004 and to contain 26,679,680 acres 
of land. It ranks seventeenth in population; Kentucky, 
15; Indiana, 12; Alabama, 16; North Carolina, 14; 
South Carolina, 26; Virginia, 21; Missouri, 7; Georgia, 
11; Mississippi, 22; and Arkansas, 25. 

If a plan for getting enough revenue to overcome 
the yearly deficit and to place the treasury beyond the 
necessity of borrowing had been fallen upon, it would 
only have required $0,218 per capita per year to keep 
the treasury even with the world; or if a plan had 
been adopted whereby all of it had been placed on land 
it would have burdened each acre with in annual tax 
of $0,018, but with land and personal property together 
bearing only a little more than one-half the taxes 
raised by the State, one-half of the required amount 
would have placed a tax of not more than $0,009 per 
acre. This tax would only amount to ninety cents for 
each hundred acres of land. 

If Tennessee should disclose for assessment her 
personal property so as to yield enough to make per¬ 
sonalty equal 50 per cent in value of the total real es¬ 
tate assessments, the increase on this account would 
add in volume of assessable value more than $150,000,- 
000.00 and more than enough to provide the revenue 
to overcome the annual deficit. A comparison of the 
amounts of personal property, turned in by Tennessee 
and surrounding States will be shown further on in a 
table. In comparison with other neighboring States, 
Tennessee is lightly burdened with taxes for State pur¬ 
poses. The table herewith shows her per capita rev¬ 
enue receipts from all sources and on all property. 
The second column shows the per capita taxes re- 


226 


APPENDIX. 


ceived on property only, and, in the third column is 
shown the percentage of all revenue received from 
taxes on property. It will be observed that Tennessee 
stands next to Missouri, and she at the bottom of the 
list in the amount of per capita taxes received or col¬ 
lected on property. The per capita of Kentucky is 
more than double that of Tennessee. Missouri has 
assessed property of enormous volume and very large 
revenues, both from whiskey and business taxes, hence 
its low per capita. 

PER CAPITA REVENUE RECEIPTS COMPARED 
WITH SISTER STATES. 



Taxes 

Taxes 

Taxes 

Per Cent of 


All 

On 

All Revenues 


Revenues. 

Property. 

from Property. 

Indiana . 

.. $4.78 

$2.95 

61.8 

Missouri . 

.. 3.19 

1.14 

35.8 

Virginia . 

.. 4.04 

1.52 

37.5 

North Carolina. 

.. 2.25 

1.23 

54.8 

South Carolina.. 

.. 2.01 

1.41 

70.0 

Georgia. 

.. 2.56 

1.78 

60.3 

Kentucky . 

.. 4.09 

2.77 

67.7 

Tennessee . 

.. 2.30 

1.17 

50.9 

Alabama . 

.. 3.13 

1.80 

57.6 

Mississippi. 

.. 2.29 

1.34 

58.6 

Arkansas . 

.. 2.51 

1.96 

78.1 


In the future discussion of the question of deficit 
of revenue of the State, it may help you to understand 
that comparatively and relatively we, as taxpayers, 
have been playing a very small part to help the treas¬ 
ury of the State. The table which I will insert here 
gives, first, the assessed valuation of real estate; sec¬ 
ondly, of personal property. You will be interested in 
observing that Tennessee has succeeded in placing her¬ 
self below all of the other States in respect of the as- 











APPENDIX. 


227 


sessed value of personal property—even far below 
South Carolina. 

This is a delicate question to discuss. Many of our 
good friends own personal property as well as real 
estate. By common consent, the subject of assess¬ 
ment of property is rarely ever-discussed in even mod¬ 
erately polite and considerate circles of society. How¬ 
ever, the story is told (but I cannot vouch for its 
truth) that in a certain county a very plain city busi¬ 
ness man who had been paying ad valorem taxes on 
a fair basis in his mercantile business bought a farm 
and gave it for taxation. The raise in valuation be¬ 
came matter for neighborhood talk. The equalization 
board, consisting of very solid, very plain and very sub¬ 
stantial freeholders, saw the raise of our untutored 
city man and immediately held an inquisition as to his 
sanity. It was quickly decided to reduce his assess¬ 
ment to a basis low enough to establish friendly re¬ 
lations and a proper party with other property in that 
county, assessed on the low basis of about 30 per cent 
of actual value—to take the city tenderfoot in hand 
and help the community by educating him against the 
sinfulness of his extravagance and folly. 

Another story is told of a good citizen and farmer 
who sold his farm that had been assessed at a valu¬ 
ation that met neighborhood approval of $100.00 per 
acfe cash. When January 10 assessing time came 
around he and his cash and securities were enjoying 
a holiday in Hopkinsville, Kentucky, and when he re¬ 
turned, leaving his cash on deposit there and made his 
tax returns, the treasury was not enriched to any 
great extent by his assessment. 

That it may not be said that we are assessing low 


228 


APPENDIX. 


and paying a high tax rate for general government, tht 
different tax rates are given in the third column, show¬ 
ing Tennessee again struggling for low place. The 
amount of general property tax per capita may be in¬ 
teresting, therefore it is given, showing Tennessee per 
capita $1.04 against Kentucky $2.28. 


COMPARISON IN 1917. 

Per Capita 
Rate of General 



Real Property. 

Personal 

Property. 

of Levy 
per $1,000. 

Property 

Tax. 

Indiana ... 

.$1,284,839,764 

$775,580,454 

$4.01 

$2.94 

Missouri .. 

. 1,318,179,918 

383,757,605 

1.80 

1.00 

Virginia . .. 

. 696,729,871 

278,798,294 

2.54 

1.41 

N. Carolina. 

. 479,075,292 

346,394,592 

2.07 

1.02 

S. Carolina. 

. 164,111,531 

101,625,394 

6.07 

1.25 

Georgia ... 

. 525,417,644 

277,070,618 

5.00 

1.67 

Kentucky .. 

. 713,835,438 

208,621,043 

5.50 

2.71 

Tennessee . 

. 483,597,610 

82,066,334 

3.50 

1.04 

Alabama .. 

. 432,208,484 

233,528,938 

6.50 

2.28 

Mississippi.. 

. 256,265,231 

104,370,761 

6.00 

1.32 

Arkansas .. 

. 328,062,572 

133,780,458 

7.38 

1.95 


We burden our minds often with beliefs and im¬ 
pressions that will not stand against the facts. Many 
have in some way received the impression that our tax¬ 
payers are carrying an enormous burden for education. 
A study of the fourth column of the table below should 
dispel that impression for all time. Tennesseans are 
paying through the State Treasury $0.68 per capita for 
schools, while her neighbor, Kentucky, pays $1.27; Ala¬ 
bama, $1.30; Mississippi, $1.28. The first column of 
this table shows the amount each State is spending for 
“General Government.” That embraces the executive, 
legislative and judicial and the particular departments 
for which the Governor has administrative responsi¬ 
bility. I trust those who may have believed Tennes- 


APPENDIX. 


229 


see's government extravagant or wasteful will consider 
and compare the amount spent by other States of 
greater and of smaller importance than Tennessee as 
regards population and resources. , Also the table 
showing cost of State hospitals and correctional insti¬ 
tutions is worthy of study. 


GOVERNMENTAL COST PAYMENTS FOR EX¬ 
PENSES OF GENERAL DEPARTMENTS OF 
STATE GOVERNMENTS. 


Indiana .. . . 

General 

Government. 

.$ 734,244 

Per Capita Cost Per Capita 
of General for Hospitals 
Government, and Corrections. 

$0.26 $1.12 

Per Capita 
for Schools 

$1.79 

Missouri ... 

. 1,027,590 

.30 

.70 

1.19 

Virginia .... 

. 1,074,551 

.49 

.65' 

1.50 

N. Carolina. 

. 373,194 

.16 

.40 

.64 

S. Carolina.. 

. 446,748 

.27 

.34 

.62 

Georgia .... 

. 385,480 

.13 

.29 

1.12 

Kentucky .. 

. 1,853,124 

.78 

.77 

1.57 

Tennessee .. 

. 621,237 

.27 

.54 

.68 

Alabama . 

. 670,626 

.29 

.67 

1.30 

Mississippi .. 

. 563,785 

.29 

.44 

1.28 

Arkansas ... 

. 434,906 

.25 

.54 

.99 


I have shown you how easy and simple it would 
have been to have provided revenue enough to pre¬ 
vent a deficit. 

The problem with which you have to deal is not 
one of finding barely enough additional revenues to 
overcome the comparatively small recurring annual 
deficit, but is larger, more important and far-reaching. 
The opportunity and the privilege are yours now of lay¬ 
ing broad and deep foundations, on which a sound 
system of assessment, taxation, and State finance may 
be constructed and perfected. Such a system will 
permit and furnish the means for a great State and a 
great people to go forward and upward to a realization 






230 


APPENDIX. 


of the new standards and ideals that they have evolved 
from the broadened visions and widened horizons that 
have come to us all. 

The General Assembly alone has the power to pro¬ 
vide for the payment of the State’s just obligations and 
the business qualifications of no Governor can prevent 
a deficit when the income is wholly insufficient to meet 
current expenses and provision is not made or is 
refused by the legislative body. Creating a debt or 
obligation is easy, especially when its purpose is ap¬ 
proved by the public. It is often hard, however, to 
provide the means for its payment, and this is partic¬ 
ularly true when the funds must be raised by increased 
taxation. 

I congratulate you upon having the opportunity of 
doing great constructive service for the people at this 
time. The people whom you represent were never 
more worthy or deserving of the best service you are 
capable of giving. We have been passing through an 
experience that has tested the quality of our manhood 
and the purity and nobility of our citizenship. Our 
people gave their sons to fight and die that the things 
we most cherish in life might not perish. Those of 
us who could not go gave our thoughts by day and 
by night, our prayers, our money, our energies and 
skill to create, produce, furnish and do helpful service 
in carrying on this great work. 

This splendid people who made so many sacrifices 
sent you here to represent them in matters of great and 
vital importance to the State and to humanity. If I 
rightly interpret the spirit and desires of the thoughtful 
citizens of the State, they expect you to provide the 
means of carrying on State government, not in waste- 


APPENDIX. 


231 


ful or extravagant fashion, but to make suitable and 
proper provision for a dignified, orderly, business-like, 
economical government befitting a great people, a gov¬ 
ernment whose officers and employes are compensated 
fairly, respectably and commensurate with the character 
of service they each are called upon to perform and 
who render the full day’s work for a full day’s pay. 
But beyond the mere administrative agencies and ad¬ 
ministrative functions of government are the big prob¬ 
lems your people want you to consider and to solve. 

The relation of the government to the public health 
was never so well understood as it is today. The prob¬ 
lems of better health and of sanitation in both town 
and country must be dealt with in the light thrown 
upon these subjects by scientific research and endeavor; 
great questions affecting the rights of labor and of 
capital must be dealt with in the spirit and with the 
clearer understanding that has come to us as fruitage 
of the great conflict in which you have all played 
an important part. Better highways, whatever they 
may reasonably cost, are demanded. Our young men 
who have used the magnificent roads in France built 
hundreds of years ago—used them when the fate of 
great enterprises and issues depended upon mighty 
forces moving over these roads to a given point in the 
shortest time—these boys are returning and are start¬ 
ing a good roads movement that will not end until we 
have a decent and creditable highway system, reaching 
every section of the State. You are going to be called 
upon to meet and to match in ever-increasing measure 
and volume the millions of dollars the U. S. govern¬ 
ment will devote to this great movement. 

The cause of education will demand your attention. 


232 


APPENDIX. 


Better rural schools, longer terms, better-paid teachers, 
improved, better and more high schools, well-conducted 
normal schools where teachers in never-ending numbers 
and volume will be trained; special vocational and 
technical schools, vocational departments and physical 
training departments; agricultural training and educa¬ 
tion, the further development and enlargement of our 
State university along the varied lines of its great use¬ 
fulness, are all necessary to the perfection of a great 
educational system that you can help on the way to the 
higher standards we must reach. Tennessee has not 
been provided with funds to play more than a small 
part in the great movement that has gained so much 
force in many States, but I predict will soon start with 
almost irresistible force and never halt until illiteracy 
has been removed. The U. S. government will soon be 
spending hundreds of millions of dollars for public ed¬ 
ucation along the most practical and useful lines. We 
will be called upon to give a dollar for every one the 
government will give. Shall we prepare by a proper 
and just system of assessment and of taxation to pro¬ 
vide the needed funds for these great purposes? 

Your institutions demand at your hands the money 
necessary to carry on progressively the fair work al¬ 
ready begun. Many new things remain to be done for 
humanity and for our social well-being as a people. 
Now that we have been taught by the heart-breaking 
experiences of the last few years to see the humane 
side of things, we should esteem it a great privilege to 
have the opportunity of providing the revenue which is 
a condition of all government, for proper social en¬ 
deavor. The people who have given much find them¬ 
selves richer by their giving. They stand ready to re- 


APPENDIX, 


233 


spond to a just, fair and equitable system of assess¬ 
ment for purposes of taxation. They are willing to 
give liberally of what they are permitted to make, and 
hold and enjoy under the protection'of our government 
and its laws to be used in the furtherance of necessary 
governmental functions and activities. You need not 
doubt the attitude of the people now on the question 
of sufficient revenue for the purpose of a government 
economically and progressively administered along 
lines looking to the material and social advancement of 
our people. 

All of which is respectfully submitted. 

Tom C. Rye, Governor. 


II. 

Message of Governor A. H. Roberts. 

To the Honorable Members of the Sixty-first General 

Assembly of the State of Tennessee : 

Since my predecessor, Governor Rye, has gone ex¬ 
haustively into the recent financial history of Tennes¬ 
see, and has stated clearly and accurately the present 
deplorable condition of state finances* it is not deemed 
advisable to restate the facts set forth so fully in his 
message to the present session. This message will deal 
alone with that part of the legislative program affecting 
state finances to be submitted by my administration for 
your consideration. 

It is conceived that it is the first and paramount 
duty of this Legislature to place the state upon a firm 
financial basis. This cannot be done until the disburse¬ 
ments are brought within the revenues. For many 
years the annual deficit in the treasury, of constantly 
increasing proportions, has appeared with painful reg¬ 
ularity. No good business man would allow any pri- 



234 


APPENDIX. 


vate enterprise to fall into such a condition if it could 
possibly be prevented. 

Heretofore the practice has been to make heavy 
appropriations of public funds without providing a 
method of securing the revenue to meet them. Let me 
urge upon you with much earnestness that this process 
should be reversed at the present session. We must 
determine what amount of money is needed to carry on 
an efficient state government, economically adminis¬ 
tered in every department according to strict business 
methods. Having ascertained the amount actually 
needed, we must then provide the means of raising this 
revenue and appropriate only such funds as are in 
sight. In other words, the state must live within its 
income. In my judgment it is essential to a proper 
understanding of our state finances that every dollar 
collected for the state or for any arm or institution of 
the state, supported by appropriations from the public 
treasury, either by an official or agent of the state or of 
such institution or department, to be paid into the 
treasury of the state and a record made of such pay¬ 
ment; and, on the other hand, that every dollar dis¬ 
bursed by the state or by any one acting for it in the 
handling of its funds or of funds in which it is inter¬ 
ested, directly or indirectly, be paid out on warrant 
of the Comptroller, supported by proper vouchers 
therefor. It is not a sufficient argument against the 
plan just proposed to urge that an unnecessary burden 
would be imposed upon the office force in the treasury 
department and in the comptroller’s office; neither can 
it be successfully urged that any mere inconvenience 
to those who handle the funds would outweigh the ad¬ 
vantages which would flow to the public from having 


APPENDIX. 


235 


a full accounting of all public funds with the informa¬ 
tion easily accessible to the people and to their repre¬ 
sentatives. When any official or subordinate is permit¬ 
ted to make collections and disbursements and only 
cover into the treasury any balance left in his hands 
he is constantly invited and tempted to commit frauds 
of one kind and another. The records of the State 
Treasurer and of every financial transaction affecting 
it should be as perfect and complete as are those of any 
well-regulated banking institution. 

An investigation of the various departments of the 
state government discloses the fact that in many in¬ 
stances there is an overlapping of effort and expense 
that is wholly unjustifiable. In some instances persons 
on the payroll of the state are not working half time. 
I believe that every employe of the state, whatever his 
station may be, should be given as much work as he 
would be expected to do if he were employed by a good 
business man in some private enterprise. Only so 
many officers and assistants should be employed as are 
actually necessary to carry on the state government 
when all are working full time and giving their best 
energies to the service of the state alone. It is my 
purpose to ask the Legislature to begin the use of the 
pruning knife and the simplification and unification of 
effort in the Governor’s office. Bills will be submitted 
to the Legislature requiring the private secretary to 
the Governor, who now receives $2,500.00 per annum, 
in addition to the duties now required of him, to dis¬ 
charge such duties as are now performed by three other 
officials who are on the payroll of the state, which three 
officials together receive $5,700.00. A portion of this 
work would ultimately fall upon the Governor, but he, 


236 


APPENDIX. 


too, should work, as well as other officials. I may say 
that where the constitution and law cast upon me as 
your Chief Executive responsible duties, I shall not at 
any time shirk their performance or attempt to shift 
them upon other shoulders. This is only one small 
item, but it illustrates the point I am attempting to 
make. 

This process of reducing expenses by elimination 
and consolidation will be carried through every de¬ 
partment of the state government and will be worked 
out honestly and fearlessly, with sole reference to the 
public welfare. It is confidently hoped that no mem¬ 
ber of this Legislature will permit himself to be 
swerved a hair’s breadth from his duty because per¬ 
chance some intimate friend may be affected by this 
wholesome reduction of expenditures. However, in 
reducing expenses, we must never for one moment 
permit ourselves to impair the efficiency of any essen¬ 
tial function of state government. 

The subject of the cost of the criminal courts of 
Tennessee, and the income derived by the state from 
their operation, has engaged my attention for some 
time. District Attorneys now receive $3,000.00 each 
per annum for their services and their fees in criminal 
cases are taxed in favor of the state. It was the theory 
of the Legislature placing them upon salaries and re¬ 
quiring their fees to be covered into the state treasury 
that the state would realize a considerable net sum 
from this source. But through lax methods of admin¬ 
istering the law, or otherwise, the state now receives 
but a very small part of the amount paid by it to these 
prosecuting officers. Prior to the passage of the Act 
placing them upon salaries many of them were making 


APPENDIX. 


237 


largely more than the amount of the salary fixed by 
law. The report of the Comptroller shows that for a 
two-year period in the recent past, one county, with an 
Assistant Attorney General on a salary of $1,500.00 a 
year, paid into the treasury in two years the sum of 
only $5.00. This represented, of course, a collection 
in one misdemeanor case in two years. Bills have been 
prepared having for their object the enforcement of 
the collection of this fee of $5.00 in each misdemeanor 
case and an additional sum in felony cases. It is not 
uncommon for the state to realize less than $500.00 per 
annum from the fees earned by an Attorney General 
and collected and turned into the treasury. 

It has been held by the Supreme Court that the 
state and county taxes in criminal cases are mere debts 
and that, therefore, a convicted defendant cannot be 
imprisoned and made to work out these taxes. Hence, 
in many jurisdictions, unless convicted defendants vol¬ 
untarily pay or secure the taxes, they are never col¬ 
lected. A bill has been prepared to cure this apparent 
defect in our system, by providing that $5.00 shall be 
taxed in each misdemeanor case as cost in favor of the 
state, and $5.00 as cost in favor of the county, upon the 
theory that the state has a direct financial interest in 
the bill of cost, because it pays the salaries of the Judge 
and District Attorney, where the county has a direct 
financial interest in the bill of cost, for the reason that 
it pays the grand jury and the trial jury empaneled to 
pass on the case. 

There are quite a number of Assistant Attorney 
Generals in various country circuits of the state whose 
offices should be abolished, and as a substitute for their 
services the circuit and Criminal Judges should be 


238 


APPENDIX. 


given the power and authority to appoint foremen of 
grand juries for a given term with full power to handle 
the business of the grand jury in the same manner it is 
now conducted by these Assistants. This will result in 
quite a saving to the state. 

It is confidently believed that the court measures 
proposed will bring into the state treasury many thou¬ 
sands of dollars annually, thus placing the burdens of 
the criminal courts upon the criminals themselves and 
lifting them from the shoulders of law-abiding tax¬ 
payers. 

In nearly every civilized government in the world 
inheritance taxes are recognized as a just and proper 
means of raising revenue. For the biennial period of 
1917-1918 the state collected from inheritance taxes 
the sum of $477,044.66. Our inheritance tax laws are 
contradictory, indefinite and very unsatisfactory. A 
bill has been prepared with much care and labor em¬ 
bracing within its scope what is intended to be the en¬ 
tire inheritance tax laws of this state and repealing all 
laws in conflict with it. Rates have been slightly in¬ 
creased over those now in force in this state, but those 
in the proposed bill are still well within the rates fixed 
by other progressive states. This bill, if enacted, 
should produce a hundred and fifty to two hundred 
thousand dollars additional revenue annually, and 
would not fall with undue weight upon any class of 
persons. 

It is peculiarly appropriate at this time that this bill 
be passed, not only because Tennessee is in need of the 
additional revenue, and not only because the rates are 
reasonable, but for the further and cogent reason that 
large sums of money have lately been invested by our 


APPENDIX. 


239 


people in non-taxable government securities, which 
cannot be reached by the state at any time or in any 
way except in this manner. To illustrate: A man may 
now invest his entire fortune in United States bonds 
and rear his family on the income, send his children to 
the public schools and give them a thorough education, 
pay no part of the expenses of maintaining the courts 
or the schools or aid in any other way in the support 
of the state government, while receiving the full pro¬ 
tection of the state throughout his life without the 
payment of one penny, except a poll tax, and yet be a 
man of wealth. Upon his death his fortune would pass 
by descent to his children, who had thus been educated 
by the state, or rather by those citizens of the state 
who had been required to support the state institutions, 
without any portion thereof being demanded in taxes, 
unless it is done by means of an inheritance tax law. 
This bill also attempts to reach life insurance and is 
in harmony with the laws of some of the most enlight¬ 
ened states in the union on this subject. To make a 
further illustration: A citizen may take insurance on 
his life for the benefit of his family and thus invest his 
entire surplus earnings in insurance, paying no taxes 
whatever to the state, while his children are being edu¬ 
cated and his family protected in their lives and liber¬ 
ties, and at his death the insurance, which is but an 
accumulation of the earnings of the insured, goes to 
the objects of his bounty untouched by the state, unless 
it is done in the manner pointed out in this bill. It is 
unfair to the property owners of Tennessee, whose 
property is exposed at all times to the tax gatherer, as 
is the case with the farmer and the home owner, to 
compel them to furnish schools, courts, law officers 


240 


APPENDIX. 


and other governmental advantages to those citizens* 
who so manipulate their holdings as that they get the. 
benefit of government and do not bear any of its bur¬ 
dens. This bill seeks to compel certain citizens who 
have heretofore escaped the tax gatherer, and have at 
the same time received all the benefits of government,, 
to bear at least a small part of the burdens of the state 
government. It is now recognized by all good business 
men that life insurance is only one form of a safe busi¬ 
ness investment. If one citizen desires to invest his 
earnings in life insurance and another in lands, it is 
certainly unjust to compel the land owner to educate 
both families and to support the state government, 
which protects both families. I earnestly urge the 
passage of this bill, without amendment. 

Another measure of considerable importance is a 
bill which has also been prepared with much care, be¬ 
cause of the great difficulty in drawing a statute that 
would at the same time square with the Interstate 
Commerce clause of the Federal Constitution and with 
our own State Constitution. I refer to a bill which 
confers upon the Railroad Commission the power to 
tax express companies, the Pullman company, trans¬ 
portation companies of various kinds, such as the 
Standard Oil Co., Armour Packing Co., and other like 
concerns, pipe lines, etc., which now pay no ad valorem 
tax whatever, because the Legislature has failed to pro¬ 
vide a method for the assessment and collection of 
taxes upon intangible property of these corporations. 
Considerable sums of additional revenue should be de¬ 
rived from properties not heretofore taxed at all. The 
difficulty in fixing a valid and constitutional method of 
assessing the taxes upon these corporations which do* 


APPENDIX. 


241 


a large business in the state and own valuable property 
rights, should not deter the Legislature from an honest 
effort to compel these property owners to bear their 
just share of the burden of maintaining the govern¬ 
ment which protects them in their rights. This bill 
has received that exhaustive study which is due a mat¬ 
ter of so much importance to every taxpayer of the 
state. It is presented to the Legislature in the con¬ 
fident belief that it is in thorough accord with the 
fundamental law of the state and of the nation. 

There is yet another subject of very great impor¬ 
tance to every honest man in the state. A bill has been 
introduced in both houses of the present Legislature 
which would confer upon the Railroad Commission 
all the power now exercised by the State Board of 
Equalization, together with some additional powers 
necessary to enable it to equalize assessments upon 
property throughout the state. Our taxing system is 
among the weakest and worst of any state in the 
union. The inherent weakness and vice in the present 
system are found in the utter lack of any adequate 
means or method for equalizing taxes among various 
classes of property and the different localities. We 
now have two state boards of equalization, one charged 
with the duty of equalizing the assessments upon rail¬ 
roads and certain other public utilities, and the other 
board charged with equalizing assessments of land and 
personal property. We should have only one board 
and it should have sufficient power to compel every 
property owner to bear his just share of the tax bur¬ 
den. We now have ninety-six systems, or rather pre¬ 
tenses, each county vying with the other in an effort 
to reduce the assessment so as to minimize the amount 


242 


APPENDIX. 


of state taxes to be paid by that county. In the case of 
Greene vs. L. & I. Railroad Co., 244 United States, 
499, decided in 1917, it is held by the Supreme Court 
of the United States that “Uniformity in taxing implies 
equality in the burden of taxation; and this equality 
cannot exist without uniformity in the basis of assess¬ 
ment, as. well as in the rate of taxation.” We are now 
face to face in Tennessee with decisions of the Su¬ 
preme Court which make it our manifest duty to pro¬ 
vide a method by which all property in this state shall 
be required to bear its just proportion of the tax bur¬ 
den. The taxpayer may go into the courts and pro¬ 
tect himself against unjust discrimination. That is to 
say, if the Railroad Commission should assess railroad 
property throughout the state, for state and county 
purposes, at 60 per cent of its fair, cash value, and if 
the county authorities should, intentionally and habit¬ 
ually, assess other properties in any given county at a 
different rate, say 40 per cent, the railroad so suffering 
from this discrimination might go into court and suc¬ 
cessfully prosecute its suit to correct the inequality. 
But if one county, through which a railroad passed, 
should assess its properties at say 30 per cent, another 
at 40 per cent, another at 50 per cent, and so on with 
varying rates, then complications would arise which 
would cause interminable confusion and endless 
trouble. This deplorable condition must not be per¬ 
mitted to continue longer. All property, of whatever 
nature or kind, must bear the same burden, unless ex¬ 
empted by the Constitution from the payment of taxes. 

Heretofore county assessors, with some show of 
reason, have declined to assess properties within their 
jurisdictions at their fair cash value because the rates 


APPENDIX. 


243 


fixed by the Legislature and by the county courts were 
so high that too much revenue would be produced and 
a surplus in the treasuries would-be created and con¬ 
stitute a standing invitation to graft and extravagance. 
To prevent the possibility of such a condition a bill 
has been prepared containing a sliding scale of rates, 
which is a companion bill to the one last mentioned, 
and undertakes to fix the rates in such a manner that 
in no event can there be any substantial surplus in the 
treasury. As the assessment increases the rate de¬ 
creases in a like proportion, so that a gross assessment 
of nine hundred million dollars will produce the same 
amount of revenue as a gross assessment of fifteen 
hundred millions, or any larger sum. In this way the 
taxpayer is protected in his property rights against any 
possibility of the collection of a sum of money not 
needed to carry on the state government. On the other 
side, the state is likewise assured of a sufficient fund 
for its necessary expenses. If these two bills are en¬ 
acted into law, it is verily believed that the honest tax¬ 
payer in Tennessee will greatly profit therefrom. The 
natural result will be to place assessments of all forms 
of property at their actual cash value, as is now pro¬ 
vided by law. Consequently the rate will be very ma¬ 
terially reduced and the holders of elusive personal 
property bearing a small, fixed income, who have here¬ 
tofore felt that if they listed it for taxation too large 
a share of the income would be consumed in taxes, will 
bring their stocks, bonds, notes, etc., out of hiding and 
allow them to be listed and will pay taxes at the re¬ 
duced rate rather than continue to be tax dodgers. Our 
present law fosters and invites fraud and dishonesty; 
the proposed bills will at least tend to encourage the 


244 


APPENDIX. 


citizen to be honest and patriotic. The moral and edu¬ 
cational effect of these bills should be far-reaching and 
most beneficial. These bills are the very foundation of 
our whole financial program, without which nothing of 
real benefit to the finances of the state can possibly 
be secured at the hands of this Legislature. It is con¬ 
templated by these bills that the Railroad Commission 
of the state, as a State Board of Equalization, for the 
first two years of the operation of these bills would 
need quite a number of assistants to gather evidence to 
be submitted to the Chief Tax Statistician, who should 
be a first-class lawyer and a good judge, and that he 
would take the proof submitted to him by experts ap¬ 
pointed by the board and from this proof make a re¬ 
port to the board, upon which the board could equalize 
assessments on all forms of property. That is to say, 
the board might select one man as an expert on bank 
values and have him gather the evidence from various 
parts of the state with respect to the assessments of 
bank properties by the different county assessors. An¬ 
other expert would gather evidence and report upon 
land values, and so on through the list of properties of 
different kinds. It would probably require two years 
to bring about a comparative equalization of the as¬ 
sessments throughout the state, after which time the 
number of assistants would be materially reduced. For 
this reason the board is authorized to employ so many 
as may be actually needed, by and with the consent 
of the Governor. Much of this proof could be gath¬ 
ered by the Chief Tax Statistician from the various 
county officials of the State, whom he could require 
to submit sworn reports of various kinds with respect 
to properties in other counties. 


APPENDIX. 


245 


I do not believe it is at all necessary for this Legis¬ 
lature to create a separate and independent tax com¬ 
mission or for any tax commission or state board of 
equalization to appoint county assessors or to be given 
the power to remove them, but on the contrary, I be¬ 
lieve in the fundamental doctrine that the people are 
capable of electing their own officials and that not only 
the county assessors should be elected by the people, 
but the State Board of Equalization as well. “The 
power to tax is the power to destroy.” This great pow¬ 
er should not be too far removed from the people. In¬ 
deed, I am a firm believer in the right of the people 
to have their officials near enough to them that they 
may take hold of a recalcitrant official and bring him 
to account and thus change the method of conducting 
his office. The tendency in some quarters, even in our 
own state, has been to lodge in certain officials, who 
were beyond the immediate reach of the people, very 
large power, upon the theory that such officials were 
thereby removed from politics and would be free to 
do their duty. I do not subscribe to any such doctrine. 
There is no such thing as taking any official out of the 
realm of politics in any free government. The safe 
course for the people to pursue always is to have their 
officials as near them as possible, so that they may be 
compelled to answer to the people for their misdeeds, 
if they commit them. A faithful official need never 
fear the people; an unfaithful one ought to be made to 
fear them. 

Many other measures, having for their object the 
correction of our financial evils, have been or will be 
submitted to the Legislature. All these measures 


246 


APPENDIX. 


should receive your prompt and earnest consideration. 
We must not longer delay such important matters. 

I desire to call your attention to the fact that the 
state owns nearly 11,000 acres of timbered land in 
Morgan County, on which its coal mines at Petros are 
now being operated. The Board of Control has had 
an experienced timber man make a cruise of the mer¬ 
chantable timber standing on this tract, and it appears 
from the best information obtainable that there is from 
twelve millions to fifteen millions feet of valuable tim¬ 
ber on the tract. Much of this timber is full grown, 
some of it is dying and as a whole it seems to be de¬ 
preciating in value. Besides timber and lumber prices 
are now exceedingly good, and I recommend that 
prompt steps be taken to convert this timber into cash. 
It seems to me that the state should either sell this 
timber on the stump or provide for working some of 
the short term convicts and some of the older boys in 
the State Training and Agricultural School in cutting 
and manufacturing it into the various forms of timber 
products and selling the same on an early market. Let 
me suggest that a committee of capable, honest timber 
experts should be appointed to report as to the advisa¬ 
bility of selling or manufacturing this timber. 

In the same connection, it should be stated that the 
workable coal available to the present openings at 
Petros mines, and in the seam of coal now being 
worked, will be exhausted in four or five years, if op¬ 
erations continue as heretofore. So, it may be found 
necessary to open other mines or work other veins, 
or otherwise prepare for the employment of the con¬ 
victs in mining coal on this tract. It has been sug¬ 
gested by some well-informed business men in that 


APPENDIX. 


247 


section of the state that we should aid in the building 
of a short line of railroad of about eleven miles. This 
road would be comparatively inexpensive, since it 
would run across a practically level country. These pri¬ 
vate land owners are anxious to make some sort of 
contract with the state by which some of the convicts 
could be employed in the building of this road, which, 
it is claimed, would benefit the state very materially. 
It occurs to me that a committee of men who are qual¬ 
ified by training and education to pass upon the feasi¬ 
bility of the state’s entering into such an agreement 
should also be appointed by legislative authority to in¬ 
vestigate and report upon this point. It might be prac¬ 
ticable to allow one committee to report on both prop¬ 
ositions. This is a matter for the determination of the 
Legislature. 

Being fully convinced that the Legislature should 
proceed with its labors in a systematic way and feeling 
that the financial questions hereinbefore discussed are 
of first importance, I have addressed myself solely to 
these paramount questions in this message, and will 
avail myself of the opportunity to communicate with 
you from time to time upon such other subjects as may 
be then under consideration. 

This Legislature has already given strong evidence 
of its patriotic intention to serve the state faithfully 
and uphold the administration in every effort to redeem 
the pledges on which we were elected to office. The 
eyes of the people of the state are upon us; they are 
demanding that we do our duty promptly and faith¬ 
fully. Let us take up these difficult problems and 
study them and act upon them with firm resolve and 


248 


APPENDIX. 


honest purpose, and that, too, before permitting our¬ 
selves to be drawn into a consideration of other matters 
of secondary importance. Everything else should be 
laid aside until necessary financial reforms are effected 
and the state is placed upon a solid foundation. 

Respectfully, 

A. H. ROBERTS. 


APPENDIX C. 


I. RESOLUTION 56 OF THE GENERAL 
ASSEMBLY OF 1919, PROVIDING 
FOR AN INCOME TAX LAW. 

Be it resolved by the General Assembly of the 
State of Tennessee, the Senate and House of Repre¬ 
sentatives concurring, That a proposed amendment 
to the Constitution of Tennessee, adopted in 1870 A. 
D., be, and the same is, agreed to by a majority of the 
members elected to the Senate and House of Repre¬ 
sentatives, as follows: 

“The General Assembly shall have power to levy 
and collect taxes on incomes from whatever source 
derived,” same to be known as Amendment Number 
1 to the Constitution. 

Be it further resolved, That said proposed amend¬ 
ment be, and the same is, referred to the General 
Assembly of Tennessee next to be chosen; and the 
text thereof shall be published by the Secretary of 
State at least six months previous to the date of 
electing the members of said General Assembly, in 
newspapers of general circulation published in each 
of the grand divisions of this State. 

Be it further resolved, That if said proposed 
amendment to the Constitution shall be agreed to by 
two-thirds of all the members elected to each House 
in the next General Assembly, it shall be submitted 
by the General Assembly to the people, in such man- 


250 


APPENDIX. 


ner and at such times as the said next General Assem¬ 
bly may by statute prescribe. 

Adopted April 14, 1919. 

Andrew L. Todd, 

Speaker of the Senate. 

Seth M. Walker, 

Speaker of the House of Representatives. 
Approved April 15, 1919. 

A. H. Roberts, 

Governor. 

II. RESOLUTIONS PROVIDING FOR THE 
CALLING OF A CONSTITUTIONAL CON¬ 
VENTION AND ELECTION OF 
DELEGATES THERETO. 

Be it resolved by the General Assembly of the 
State of Tennessee, the Senate and House of Repre¬ 
sentatives concurring, That a proposed amendment to 
the Constitution of Tennessee adopted in 1870 A. D., 
be, and the same is hereby agreed to by a majority of 
the members elected to the Senate and House of 
Representatives of the Sixty-first General Assembly, 
as follows: 

“Section 3, of Article XI of the Constitution of 
the State of Tennessee adopted in 1870, prescribing 
the method of amending said Constitution, is hereby 
amended so as to provide that amendments to the 
Constitution may be submitted to the people, in such 
manner and at such times as the General Assembly 
shall prescribe, whenever a single General Assembly 


APPENDIX. 


251 


shall have agreed to such proposed amendment or 
amendments by a vote of two-thirds of all the mem¬ 
bers elected to each of the two Houses. ,, 

Be it further resolved, That said proposed amend¬ 
ment be, and the same is, referred to the General 
Assembly of Tennessee next to be chosen; and the 
text thereof shall be published by the Secretary of 
State at least six months previous to the date of elect¬ 
ing the members of said General Assembly, in news¬ 
papers of general circulation in each of the Grand 
Divisions of this State. 

Be it further resolved, That if sg.id proposed 
Amendment to the Constitution shall be agreed to by 
two-thirds of all the members elected to each House 
in the next General Assembly, it shall be submitted by 
the General Assembly to the people, in such manne- 
and at such times as the next ensuing General Assem¬ 
bly may by Statute prescribe. 

Adopted April 10, 1919. 

Andrew L. Todd, 

Speaker of the Senate. 

Seth M. Walker, 

Speaker of the House of Representatives. 
Approved April 11, 1919. 

A. H. Roberts, 

Governor. 



BIBLIOGRAPHY 


Acts of the General Assembly of Tennessee. 1870 to 1919. 

Bullock, C. J., Selected Readings in Public Finance. 1906. 

Caldwell, Joshua W., Constitutional History of Tennessee. 
1895. 

Codes and Statutes of the various states. 

Ely, Richard T., Outlines of Economics. 1916. 

Fertig, J. W., The Secession and Reconstruction. 1898. 

Governors’ Messages. 1870 to 1919. 

Garrett, W. R., and Goodpasture, A. V., History of Tennes¬ 
see. 1905. 

Marshall, Park, Life of William Bate. 1908. 

McGee, G. R., History of Tennessee. 

McClure, Wallace, State Constitution Making. 1916. 

Millikin and Vertrees Code of Tennessee. 1884. 

National Tax Association Reports. 1907 to 1918. 

Plehn, C. C., Introduction to Public Finance. 1911. 

Reports, Tennessee Court. 1870 to 1918. 

Reports of the Commissioner of Building and Loan Associa¬ 
tion. 1895 to 1918. 

Reports of Comptroller of the Treasury of Tennessee. 1870 
to 1918. 

Reports of the Insurance Commissioner. 1873 to 1918. 

Reports of the Railroad Commission from 1895 to 1918, includ¬ 
ing the Reports of the State Board of Equalization and 
the State Board of Tax Assessors from 1875 to 1895. 

Report of the Special Tax Commission of Tennessee. 1915. 

Reports of the Treasurer of Tennessee. 1870 to 1918. 

Shannon, Robert T., Annotated Constitution of Tennessee. 
1916. 



254 


BIBLIOGRAPHY. 


Shannon’s Annotated Code of Tennessee. Editions 1896, 1907, 
and 1917. 

Shannon, Robert T., Tax Digest and Criminal Cost Laws. 
1907. 

Scott, W. A., Repudiation of State Debts. 

Seligman, Edwin R. A., Essays in Taxation. 1913. 

Stevens, Ike B., The Corporation. 1917. 

Taxation and Revenue Systems of State and Local Govern¬ 
ments. Federal Report. 1914. 

The Encyclopedic Digest of Tennessee Reports. 1907, and 
Supplement of 1914. 

Thompson’s Shannon’s Code of Tennessee. 1918. 

Thompson’s Shannon’s Code of Tennessee. 1920 Supplement. 

Various Newspapers, including the Republican Banner , Union 
and American, American Weekly, American Daily, Ten¬ 
nessean and American, Nashville American, and Nashville 
Banner. 


INDEX 


[References are to pages] 


AD VALOREM— 

Merchants . 114 


Of Turnpikes . 

Value of .24, 30, 


AGGREGATE STATEMENT TO 


COMPTROLLER .26, 46 

AID— 

State . 16 

APPENDIX A. 195 

APPENDIX B. 198 

APPENDIX C. 249 

ASSESSMENTS— 

Back . 46 

Bank .25, 107 

Basis of, in 1873. 24 

Basis of Railroad Realty.64, 71 

Of Bonds . 40 

Of Cemetery Companies. 107 

Comparison of Personalty and 

Realty . 58 

Constitutional Requirements for.. 34 

Of Corporations . 82 

Defect of the System. 151 

Description of Property for. 25 

Of Express Companies. 100 

Of Ferries . 39 

Of Hydro-Electric Companies.... 101 

Increased in 1889. 89 

Inequalities of . 153 

Of Insurance Companies. 107 

Of Investment Companies. 107 

Of Loan Companies. 107 

Localized Property.67, 70, 71 

Method of.29, 38, 93, 94 

Merchants’ .25, 41, 113 

Of Merchants and Privileges. 41 

Of News Companies. 101 

Polls . 37 

Of Property Returned by Agents.. 38 

Railroad Properties .26, 63, 76 

Real and Personal Property. 37 

Sleeping Car Companies. 99 

Of Steamboats . 39 

Of Telegraph Companies. 79 

Telephone Companies . 81 

Of Terminal Companies. 101 

Time for .24, 28, 30 


ASSESSMENT ACTS WHICH 


FAILED OF PASSAGE. 

ASSESSMENT SYSTEM— 

History of . 

ASSESSORS— 

Appointment of . 

Assistants Allowed .29, 

Compensation of ..27, 28, 29, 31, 

Difficulties of . 

District .29, 

Duty of . 27, 

Localized Railroad Property 

Assessed by .67, 

ASSESSORS— 

Election of .29, 

Practices of . 

Qualification and Election of.... 

State Board of.34, 65, 

Tenure of . 

AUCTION— 

Sales .113, 


AUTOMOBILE— 

Tax, Rate of. 

Not Taxed . 

Registration Fees . 

AUTONOMY— 

Local . 

BANKS— 

Fees for Inspection. 

To Guarantee Payment. 

History of Taxation of. 

Method of Taxing.83, 

National, Influence of. 

Present Plan of Taxing. 

Separated from other Corporations 

Situs of Property of. 

BONDS— 

Assessment of .40, 

Forbidding State Issuing Certain. 

Income Tax on. 

Local Improvement, Act of 1919.. 

Situs of . 

State's Power to Issue. 


102 

152 

176 

23 

26 

37 

36 

152 
30 

37 

80 

36 

45 

32 
67 

33 

114 

147 

153 

146 

27 

108 

105 

103 

89 

89 

107 

89 

39 

154 
16 
16 

175 

96 

19 





































































256 


INDEX 


United States not Exempt. 138 

BONDHOLDERS— 

Taxation of . 86 

BONDED INDEBTEDNESS . 88 

"BLUE SKY”— 

Fees of . 126 

BROWNLOW DEBT— 

Amount of . 18 

BUILDING AND LOAN 
ASSOCIATIONS— 

In General . 143 

Receipts of . 144 

BUSINESS LICENSE TAXES...21, 118 
Advance and Decline of Rate.... 121 

Collection of . 122 

Historical Development . 120 

Purpose of . 118 

Rates of Various Enterprises.... 122 

Receipts of . 123 

A Regulation . 121 

BUSINESS CORPORATIONS— 

Protection of . 27 

CAPITAL STOCK— 

Assessment of . 154 

Railroad not Exempt. 65 

CEMETERIES AND 
MONUMENTS— 

Exemption of . 24 

CEMETERY COMPANIES— 

Method of taxing. 107 

CERTIFICATES AND SEALS— 

Fees . 126 

CHARTER TAX— 

Of Corporations . 125 

CHIEF TAX STATISTICIAN— 

Office Created . 168 

CLASSIFICATION OF PROPERTY 

FOR TAXATION . 19 

CLERK— 

Compensation of .28, 29, 31 

Duty of . 29 

COLLATERAL INHERITANCES— 

Situs of Property Held as. 39 

COLLECTIONS— 

Automobile Tax . 147 

Of Business License Taxes. 122 

Date of . 54 

History of . 47 

Inheritances . 139 


Of Insurance Agents’ Tax. 132 

Of Insurance Taxes. 129 

Litigation Fees . 122 

For Municipalities . 48 

Present Plan of. 54 

COLLECTOR— 

Compensation of . 50 

Of Delinquent Taxes. 50 

COMMISSIONS— 

Fees . 125 

COMMISSION MERCHANTS . 113 

CONSOLIDATION AND 
AGREEMENT— 

Fees of . 125 

CONSTITUTION— 

Origin of .9, 11 

CONSTITUTION OF 1834- 

Credit System in. 17 

CONSTITUTIONAL 

CONVENTION— 

Provisions for . 177 

Resolutions of General Assembly 

Providing for (Appendix). 250 

CONSTITUTIONAL PROVISIONS— 

1796 (Appendix) . 195 

1834 (Appendix) . 195 

1870 (Appendix) . 196 

CONVENTION— 

Acts of, Restrictive. 17 

Constitutional, of 1870. 11 

Reactionary . 17 

CONVENTION OF 1870- 

Purpose of . 12 

CORPORATIONS— 

Taxation of . 62 

Annual Filing Fee. 126 

Assessment of . 82 

Charter Tax . 125 

Differentiated for Taxation pur¬ 
poses . 84 

Difficulty of the State in Taxing. 62 
Distinguished for Taxation Pur¬ 
poses . 106 

Exemption of and Method of 

Assessing . 97 

Exemption of . 86 

In General . 82 

General Welfare, Fees of. 126 






























































INDEX. 


257 


History of . 

Method of taxing in the beginning 
Other than Quasi-Public, method 

of Assessing . 

Present Plan of. 

Privilege Tax upon. 

Rates of Taxation of. 

Recordation Fee . 

Responsible for tax of Share¬ 
holders . 

Responsibility of, for Stocks and 

Shares . 

Rights and Privileges of. 

Situs of Property of. 

Summary of*. 

COUNTY BOARD LAW ENACTED. 
COUNTY AND MUNICIPAL TAX¬ 
ATION . 

COUNTY REVENUES . 

CREDIT- 


62 

82 


76 

83 

63 

125 

85 

86 
85 
39 
91 

184 

23 

178 


Lending of State.13, 16, 19 

Extension of, to Railroads. 17 

CREDIT SYSTEM— 

History of . 17 

DEBT— 


•Public . 22 

DELINQUENT TAXES— 

Attorneys for Collection of. 50 

Collection of . 47 

Date of .48, 49, 54 

Date of Sale for. 54 

Not Collectible . 57 

The Problem of. 54 

Property Sold to State for. 55 

Of Railroads . 68 

Redemption of Property for. 54 

Trustee Collector of. 51 

DOG LAW— 


Provisions of . 173 

DOMESTICATION FEE . 126 

DOUBLE TAXATION.. .22, 87, 106, 154 

Constitutional . 98 

Of Merchants .110, 117 

DUMMY RAILROADS— 

Assessments of . 94 

EDUCATION— 

Taxation for Public. 180 

Compulsory Attendance Law. 192 


The County the Logical Unit for. 185 


The District System. 184 

Financial Problem of. 181 

Historical Development of Taxa¬ 
tion for . 183 

Inequalities in . 182 

Local Taxing Districts. 189 

National Aid for. 183 

Recent Enactments in Interest of. 190 

Reform Acts of 1919, the State 
Superintendent of, appointed by 

the Governor . 193 

Vocational Bill . 192 

EDUCATIONAL 

ORGANIZATIONS— 

Fees for . 126 

ELECTION IN FAVOR OF THE 

CONSTITUTION OF 1870. 11 

ELECTRIC LIGHT COMPANIES— 

Assessment of . 94 

EMIGRANT AGENCIES . 122 

EQUALIZATION— 

County Board of.29, 42 

How Constituted .32, 43 

Compensation of .32, 43 

Duties of .26, 32, 42 

Powers of . 43 

EQUALIZATION— 

Method of . 154 

EQUALIZATION— 

State Board of. 44 

How Constituted ... 44 

Reconstituted . 166 

Duties of . 44 

Present Method of Equalizing. 169, 170 
EXEMPTIONS— 

From Taxation.24, 30, 34, 35 

Abuses of . 155 

Corporation Tax . 85 

Of Ex-Soldiers . 114 

Of Intangible Property Outside 

the State . 97 

Of National Banks. 103 

Parsonages . 32 

Of Personalty . 22 

Poll Tax . 42 

Of Produce in the Process of 

Manufacture . 93 

Of Public Property. 14 

Railroad Property . 68 






































































258 


INDEX. 


Of Religious, Charitable, Scien¬ 
tific, Literary and Educational 

Institutions . 15 

Resolution for, in Constitution 

of 1870 . 14 

Of Bonds . 41 

EXPRESS COMPANIES— 

Method of Taxing. 100 

FAIRS— 

Exemption of . 35 

FEES— 

Defined . 123 

Annual Filing, of Corporations, 

.125, 126, 133 

For Certificates and Seals. 126 

Collected by Secretary of State.. 125 

For Domestication . 126 

For Educational Organizations... 126 

In General . 123 

Litigation .122, 127 

Paid to Comptroller. 126 

Rates for Various Purposes. 125 

Receipts from . 126 

FEES AND OTHER CHARGES— 

Act of 1919. 174 

FEE SYSTEM— 

When Used . 124 

FERRIES— 

Assessment of . 39 

FIDUCIARY AGENTS— 

Property Returned by. 38 

"FIFTY AND THREE" ACT OF 

1883 22 

FILING FEES . 125 

FINANCIAL CONDITION OF THE 

State .149-150 

FINANCIAL SYSTEM— 

Importance of in the Convention 

of 1870 . 12 

FIRE MARSHAL TAX. 134 

FOREIGN CORPORATIONS— 

Taxation of . 90 

FRANCHISES— 

Taxation of . 88 

FUND FOR EQUALIZING EDU¬ 
CATION . 191 

FUNDS FOR EDUCATION. 185 

Historical Development of. 186 

Proration of Surplus of. 188 


GAME AND FISH DEPARTMENT— 
Receipts of . 127 


GAS WORKS— 

Assessments of . 94 


GENERAL ASSEMBLY— 

Resolutions of 1919 (Appendix) 

249, 250 

GENERAL PROPERTY TAX. 13 

In Constitution of 1834. 14 

Faith in the System. 148 

Place of, in the Taxing System.. 21 

Provisions for . 18 

GOVERNOR’S MESSAGES TO THE 
GENERAL ASSEMBLY (Ap¬ 
pendix) . 198 

MESSAGE OF GOVERNOR RYE, 

(Appendix) . 198 

MESSAGE OF GOVERNOR ROB¬ 
ERTS (Appendix) . 233 

HYDRO-ELECTRIC COMPANIES— 

Method of Assessing. 101 

INCOME TAX— 

Provisions for . 16 

Resolutions of General Assembly 

Providing for (Appendix). 249 

INCOME ON BONDS— 

Assessments of . 40 


INDEBTEDNESS— 

State . 18 

INHERITANCE TAX— 

Act of 1919. 161 

Appraiser’s Duty . 139 

Brothers and Sisters Exempt.... 136 

Changes in the Laws of. 163 

Collateral .137, 164 

Co-operation of State and Nation¬ 
al Governments in Collecting.. 165 

Deductions . 141 

Direct .140, 163 

In General . 136 

Machinery for Administration.... 164 

New Plan of Appraisement. 165 

Receipts from .141, 142 

When Due . 138 


INSURANCE TAXATION— 


In General . 129 

Discrimination in .131, 132 

Exemption from . 134 



























































INDEX. 


259 


When Exempt . 134 

Method of Taxing. 107 

To Make Reports. 164 

Present Rate . 134 

Rates for Various Companies.... 131 

Receipts from . 135 

Withdrawing from the State, 

Taxable . 133 

INSURANCE AGENTS' TAX...129, 174 
INSURANCE COMMISSIONER— 

Office Created . 135 

INSURANCE DEPARTMENT— 

Fees in . 135 

INSPECTION FEES OF BANKS... 108 

INTANGIBLE PROPERTY . 22 

Distributable . 96 

Situs of .39, 90, 95 

INTERNAL IMPROVEMENTS— 
Provisions for in the Constitu¬ 
tion of 1834. 17 

INTERURBANS— 

Taxation of . 75 

INVESTMENT COMPANIES— 

Method of Taxing. 107 

JOINT STOCK COMPANIES. 85 

LICENSE TAX.21, 109, 114, 118 

LITIGATION FEES— 

Abuse of . 127 

Act of 1919. 160 

Collection of . 122 

In General . 127 

Purpose of . 127 

Provisions of the Law for. 160 

Receipts from . 128 

LOAN COMPANIES— 

Method of Taxing. 107 

LOCALIZED PROPERTY— 

Assessment of .31, 34, 67, 70 

How Equalized . 45 

Of Telegraphs . 79 

LOCAL TAXATION— 

In General . 128 

Provisions for . 18 

LOCAL AUTONOMY IN TAXATION 18 

MANUFACTURING COMPANIES 

DISTINGUISHED . 92 

MANUFACTURING COMPANIES— 

93 


MERCHANTS— 

Ad Valorem Tax of... 114 

Assessment of . 41 

Basis of Tax of.110, 111 

Commission . 113 

In Constitution of 1834. 14 

Defects in Tax of, ex-Soldiers' 

Exemption . 114 

A Fund for Education. 187 

Historical Development. 109 

Inaccurate Returns of. 117 

Incidents of Tax of. Ill 

License Required of. 114 

Method of Taxing.109, 111 

Present Method . 113 

Reduction of Rate of. 116 

Receipts from .115-116 

Present Rate for. 115 

Proration of Tax of. 114 

Protection of . 30 

Provisions for . 18 

Rate of . 112 

Relative Importance . 116 

Transient .118, 125 

MESSAGE OF GOVERNOR 

ROBERTS . 158 

MESSAGE OF GOVERNOR 

ROBERTS (Appendix) . 233 

MESSAGE OF GOVERNOR RYE, 

(Appendix) . 198 

MINES— 

Assessment of . 40 

MINORS— 

Property Assessment of. 35 

MORTGAGE TAX . 145 

Act Unconstitutional . 146 

Law Re-Enacted . 146 

Rate and Purpose of. 145 

MUNICIPAL TAXATION— 

Limitations on .23, 27 

Railroads Exempt from. 66 

MUNICIPAL LICENSE TAX. 118 

MUNICIPAL PROPERTY— 

Assessment of . 31 

MUNICIPAL REVENUES . 179 

MUNICIPALITIES— 

Method of Taxing. 71 

To Compensate Assessors. 28 


Present Method of Taxing 







































































260 


INDEX. 


Permitted to Issue Bonds for Ed¬ 


ucational Purposes . *... 190 

NATIONAL BANKS— 

Influence of. 89 

Method of Taxing. 103 

NEWS COMPANIES— 

Method of Taxing. 101 

NOTES— 

Assessment of . 31 

Taxation of Bank. 103 

Penalty for Failure to Return... 38 

Situs of . 90 

OCCUPATION TAXATION . 109 

OFFICE OF MINES— 

Receipts of . 127 

PEDDLERS' TAX— 

Provisions for .14, 18 

Foot . 103 

PERSONAL PROPERTY— 

Taxation of . 24 

Exemptions, Resolutions in Con¬ 
stitution of 1870.... 14 

Increase in Value of. 90 

PERSONALTY AND REALTY 
ASSESSMENTS— 

A Comparison of . 58 

PERSONALTY OF MINORS. 35 

PERSONALTY OF ALIENS NOT 

EXEMPT . 30 

PRIVILEGES— 

Assessment of . 41 

In General . 109 

In Constitution of 1834. 14 

Of Banks . 107 

Not Defined . 16 

Graduation of . 23 

Penalty for non-payment of. 122 

Merchants' . 113 

Option of . 74 

Provisions for . 18 

Of Railroads, Rate of.69, 74 

In Case of Exemption from. 72 

Rate of Telegraph. 80 

Receipts of Railroad. 78 

Telegraph . 79 

Receipts from Telephone. 81 

PRIVILEGE TAX COLLECTOR— 

Office Abolished . 122 


POLL TAX . 41 

Provision for .13, 18 

Collection of . 42 

Exemptions of . 13 

Liability for . 42 

Penalty for Issuing Counterfeit 

Receipts . 42 

Purposes of . 13 

Resolution in the Constitutional 
Convention on . 13 


PRODUCE EXEMPT .24, 40, 93 

PROGRESSIVE TAX RATE. 23 


PROPERTY HELD AS 
COLLATERAL— 

Situs of . 39 

PROPERTY HELD IN TRUST. 39 

PROPERTY FOR RELIGIOUS 

PURPOSES EXEMPT . 15 

PROVISIONS FOR TAXATION— 
Vagueness of . 20 


PROVISIONS GOVERNING TAX¬ 
ATION IN TENNESSEE'S 
CONSTITUTIONS (Appendix) . . 195 
PUBLIC EDUCATION— 

Taxation for . 180 

PURE FOOD DEPARTMENT— 


Receipts of . 127 

QUASI-PUBLIC CORPORATIONS 
ASSESSED BY THE RAIL¬ 
ROAD COMMISSION .90, 94 

Taxation of . 98 

Distinguished . 87 

RAILWAY CARS— 

Problem of Taxing. 75 

Rate for Itinerary. 74 

RAILROAD TAXATION— 

Method in 1882. 67 

Periods in Development of. 69 

RAILROAD PROPERTY— 

Assessment as Realty.29, 31 

Exemptions of .65, 68 

Assessment of Localized.34, 70 

RAILROAD BONDS— 

State Prohibited from Issuing.... 19 
RAILROADS— 

Board of Tax Assessors for. 65 

RAILROADS— 

Coercion of State in Taxing. 67 

































































INDEX. 


261 


RAILROAD COMMISSION . 34 

Creation of . 68 

Efficiency of . 74 

Method of Equalizing Assess¬ 
ments by . 169 

Property Assessed by. 91 


RAILROAD COMMISSION MADE 
STATE TAX ASSESSORS, 

.70, 166, 172 

RAILROADS— 

Delinquent Taxes of. 68 

Exemption of . 63 

No Exemption of Capital Stock of 65 
Extension of State Credit to..... 17 

Method of Taxing. 63 

Objections to Taxation by. 66 

Privilege Tax of. 69 

Privilege Tax Rate of.71, 74 

Short Lines . 74 

Submission to Taxation. 69 

Taxed on Realty. 64 

Value of Assessment of. 73 

REALTY— 

Of Banks not Exempt. 104 

Of Railroads . 63 

Of Railroads Taxable. G4 

Of Telegraphs . 79 

REALTY AND PERSONALTY— 

Special Forms . 39 

RECEIPTS— 

From Taxation of Banks. 108 

From Building and Loan Associa¬ 
tions . 144 

Of Business License Taxes. 123 

From Corporation Taxes. 98 

From Express Companies. 100 

From Fees .126, 128 

From Game and Fish Department 126 

From Inheritances . 141 

From Insurance Taxes. 135 

From Merchants' Privilege Taxes 115 

From News Companies. 101 

Office of Mines. 127 

Of Privilege Taxes. 81 

Pure Food Department. 127 

Railroad Taxes . 78 

Realty and Personalty. 60 

From Sleeping Car Companies... 100 
From Telegraph Companies. 80 


From Telephone Companies. 81 

From Terminal Companies. 101 

From Transfer of Realty. 145 

From Turnpike Companies. 102 


RECORDATION FEE FOR DOMES¬ 
TIC AND FOREIGN CORPO¬ 
RATIONS . 125 

RECENT REFORMS IN TAXA¬ 
TION— 

In General . 148 

Of 1919 .160-176 

REQUISITIONS— 

Fees for . 125 

RESOLUTION 56 OF THE GEN¬ 
ERAL ASSEMBLY OF 1919- 
Providing for an Income Tax 

Law (Appendix) . 249 

RESOLUTIONS PROVIDING FOR 
CALLING OF CONSTITUTION¬ 
AL CONVENTION (Appendix) 250 


REVENUE AGENTS— 

Appointment of . 51 

Duties of . 51 

Compensation of . 52 

RETURNS FOR TAXES— 

In 1873 . 20 


Penalty for Failure to Make.... 26 
SAVINGS BANKS— 


Method of Taxing. 107 

SCHEDULES— 

Corporation Tax . 77 

Itemized . 25 

Nature of .30, 38 

SCHOOL FUNDS— 


Provisions for . 19 

SEALS— 

Fees for . 126 

SECRETARY OF STATE— 

As Tax Collector. 125 

SHARES OF STOCK. 85 

Of Banks . 103 

Situs . 96 

Not Taxable . 88 

SHAREHOLDERS— 

Taxation of . 85 

SITUS— 

Of Bank Stock. 104 


Of Domestic Corporation Property 95 
Of Foreign Corporation Property. 96 

































































262 


INDEX. 


Of Inheritances . 140 

Of Intangible Property. 90 

Of Personalty . 86 

Of Property held in Trust. 39 

Of Shares of Stock. 25 

SLEEPING CAR COMPANIES— 

Method of Taxing.99-100 

SLIDING SCALE TAX RATE— 

Law of 1919, the Plan of...;.... 171 
SPECIAL FORMS OF TAXA¬ 
TION— 

In General . 129 

STATE BOARD OF EQUALIZA¬ 
TION— 

Duty of. 72 

STATE TAX ASSESSORS— 

Appointment of . 71 

Railroad Controversy with. 73 

STATE TREASURER MADE 


INSURANCE COMMISSIONER. 129 


STEAMBOATS— 

Assessment of . 39 

STOCKS AND BONDS— 

Purpose of Tax on, and Income 

Tax on . 16 

STOCKHOLDER— 

Agent of May Pay Tax. 104 

STREET RAILWAYS— 

Taxation of . 74 

SUFFRAGE— 

Requires Payment of Poll Tax... 13 
SYSTEM OF TAXATION IN 

General . 21 

TAX BOOKS— 

Of 1873 . 26 

Made by Clerk. 27 

How Made .29, 45 

TAX COMMISSION— 

Appointment of . 151 

Recommendations of .155-158 

TAX SYSTEM— 

Defects of . 151 

TAX RATES . 61 

TAX TITLES . 55 

Bill for Remedy of. 58 

Method of Obtaining. 57 

Of Property in Nashville. 56 

In Other States. 57 


TAXES COLLECTED BY COUNTY 
Trustees . t*0 

TAXATION FOR PUBLIC EDU¬ 
CATION . 180 

TAXATION— 

Possibilities of, in Constitution 

of 1870 . 18 

TELEGRAPH— 

In General . 79 

Localized Property of.71, 79 

TELEPHONES— 

Localized Property . 71 

Taxation of . 81 

TERMINAL COMPANIES— 

Method of Assessment. 101 

TIMBER— 

Assessment of . 40 

TRADE MARKS— 

Fees of . 125 

TRANSFER OF REALTY— 

Receipts from . 145 

Tax on . 144 

TRUSTEE— 

Compensation of. 53 

Collector of Corporation Taxes... 97 
Collector of Delinquent Taxes.... 51 
Taxes Collected by. CO 

TURNPIKES— 

Method of Assessing. 102 

VALUE OF ASSESSMENTS. 152 

VALUE OF CAPITAL STOCK...86, 95 

Method of Computing. 95 

VALUE OF CORPORATION 

PROPERTY . 96 

VALUE OF MERCHANTS' 

STOCKS . 113 

VALUE OF MINES AND TIMBER. 40 

VALUATION OF PROPERTY FOR 

TAXATION . 19 

VALUATION OF RAILROAD 

PROPERTY . 73 

VALUE OF REALTY BELONGING 

TO RAILROADS . 64 

WATERWORKS— 

Assessment of . 94 









































































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LIBRARY OF CONGRESS 








































































































